The Effect of the Principal Component Index for Housing Quality Satisfaction on Housing Price: Urban vs. Rural Analysis

Abstract

The 2015 Questionnaire Survey on Housing Conditions by the Construction and Planning Agency surveyed four categories of satisfactions on housing quality: living convenience, surrounding environmental quality, satisfaction on interior environment, and satisfaction on exterior environment. This study pioneeringly investigates the effect of housing satisfaction on Taiwanese housing price for six municipalities and other rural area. Since the above four survey categories of housing quality are highly overlapping, to avoid variable interaction, we construct an index for housing quality satisfaction using principle component analysis to reduce dimensionality. After controlling the moderation effect of market condition, the results show that residential area, house age, floor location, and number of floors all significantly affect housing price. More importantly, the index for housing quality satisfaction is positively related to housing price, indicating that better housing quality helps in raising housing price. However, the positive relation does not exist in Taipei City or Kaohsiung City. Consistent with previous studies, stress on high housing price may weaken the need for quality consideration, especially the case of Taipei City. Finally, market variation does not lead to difference in the relation between housing quality satisfaction and housing price.