The characterization of housing services has been elusive in terms of a
good with many components that may be valued independently of each
other. Court [6] and later Griliches [11] introduced techniques of hedonic
price analysis, in which the valuations of various components are determined
implicitly. through regression analysis.2 These hedonic prices, when
calculated and applied to "market basket" houses, reveal price differentials
of up to twenty percent between the city and suburban submarkets of a
metropolitan area. The price differentials shrink only slowly over time
and disappear only in units of relatively high structural quality.
A review of the theory compares the view of hedonic prices as long-run
equilibrium values of housing components, with a model considering a
series of short-run equilibria ,in submarkets separated by time and space.