In this case study, we apply a hedonic pricing model to estimate the value of in-unit laundry in rental apartments on the Upper West Side of New York City. Our analysis finds that apartments with in-unit laundry rent for approximately 15% more than comparable units without. This premium suggests that investing in laundry facilities could yield substantial returns for landlords and developers.
Pricing the value of an amenity—a skylight, mature trees, ductless air-conditioning, or in our case today—in-unit laundry in a rental apartment—presents some unique challenges.
For one, every home is a bundle of amenities that are inseparable in the deed or rental contract. Each individual amenity is not explicitly priced1.
Second, those amenities are not sold or leased on an item by item basis—you take the whole home, with all of its amenities, or none of it2. The smallest tradable clip is the entire dwelling. You can’t buy a home at a discount by forgoing the view.
Third, while some amenities are easily compared, many are not. How should we value the soft, yellow light in Southern California compared to the bright, clear light in Maine?
Despite these challenges, estimating the value of an amenity—even approximately—can be highly valuable. The ability to assess whether adding an amenity is worth the investment (whether purchasing it or selling it), and over what time horizon, is something that developers, agents, and homeowners alike should prize.
A case study in amenity valuation
The econometric workhorse of amenity valuation is the hedonic model—an expression of the price of a home as a function of its observable, standardized3 amenities.
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- except perhaps with some amenities in new construction[↩]
- in economic terms, housing is “lumpy”[↩]
- The implicit assumption in such models is that the independent variables, the amenities, are all alike. Of course, as we have argued here, this is rarely the case. Still, some amenities are more comparable than others[↩]