Which factors capitalize into house prices? A Bayesian averaging approach

This paper investigates the robustness of 33 community-specific explanatory variables for house prices in the Swiss metropolitan area of Zurich using Bayesian model averaging. The analysis suggests a new way to perform hedonic variable selection and provides a minimal list of variables which may serve as a priori constraints when predicting house prices or estimating the effect of other community-specific characteristics in a metropolitan area in a highly developed country. In the context analyzed, the main variables which capitalize with a high posterior probability are location-specific real estate characteristics, municipal taxes and expenditure for culture, health and social well-being. Demographic as well as other socio-economic controls seem to be of minor importance.