Wednesday, February 06, 2008

How houses are like movies

Brad Delong has a nice piece on selectivity bias and the quality of movies. His basic point is that when people say "they don't make them like they used to," they are comparing the best movies from past generations with average movies from ours. There is a natural enough reason that we do this: the only movies from the past we still watch are Hitchcock/Wilder/Huston/Capra type movies; we don't watch the mediocre stuff from the past anymore. The same is true for novels: Dickens was not the representative novelist of the 19th century.

Houses are like this too. In many markets, a hedonic regression will yield a U-shaped relationship between house vintage and value. Here in Washington, houses built in the 1920s and 30s are especially valuable. An important reason for this is that the typical house is removed from the stock between age 70 and 80 (Jack Corgel did the definitive work on this some years ago); the houses that remain are those that were especially well constructed, or have unusual and desirable design features.


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