Semiparametric Efficiency Analysis of Housing Markets

Sami Pakarinen

Research output: ThesisDoctoral ThesisMonograph


In this study, we want to find out whether the bargaining process is favoring either market participant and therefore leading to inefficiencies in the Helsinki housing market. To address this research question, we estimate a hedonic price model and, with techniques from econometric efficiency analysis (Greene 2008a), find out whether the realized transaction price has been "fair" in terms of apartment characteristics. If the actualized price from a housing transaction differs from the estimated price, based on skewness of residuals (Kuosmanen and Fosgerau 2009) we can conclude that there is some inefficiency present in the market.  We estimate a hedonic price function with StoNED method (Kuosmanen and Kortelainen 2012) from real transaction data that consists of all housing transactions carried out in Helsinki during a period between 2011 and 2012. Our data consists of almost 3,500 housing transactions from blocks of flats.  Based on our empirical results we can conclude that Helsinki housing market is 92% efficient. Per housing transaction, the inefficiency is on average 18,400 euros. The range of inefficiency varies between 4% and 13% between the submarkets. Furthermore, our results suggest that, on aggregate level, buyers have advantage over sellers in Helsinki housing markets. This means that for every housing transaction, the buyers gained approximately a 5,900 euro surplus. But there are also some market segments where sellers seem to have bargaining power against buyers. Our findings indicate that the buyers gathered their surplus from larger apartments, while sellers' markets came especially from smaller apartments.  We also found that semiparametric estimation performs well in comparison to the parametric alternative. Hedonic price function is convenient to estimate with a CNLS-based (Hildreth 1954; Kuosmanen 2008) method and assesses the housing market from the point of view of econometric efficiency. The contribution is evident since our study is the first efficiency analysis on Finnish housing markets.
Translated title of the contributionAsuntomarkkinoiden semiparametrinen tehokkuusanalyysi
Original languageEnglish
QualificationDoctor's degree
Awarding Institution
  • Aalto University
  • Kuosmanen, Timo, Thesis Advisor
Print ISBNs978-952-60-7844-1
Electronic ISBNs978-952-60-7845-8
Publication statusPublished - 2018
MoE publication typeG4 Doctoral dissertation (monograph)


  • efficiency
  • hedonic price
  • housing markets


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