|Applied Real Estate Analysis, Inc.
914 S. Wabash
Chicago, Illinois 60605
© 2003-06 AREA, Inc.
Characteristics of AREA Rents, AREA's Database and Rent Calculation Model
For each housing authority, AREA assesses current rental housing market conditions and develops a hedonic pricing model that calculates fair, defensible rent prices. Key features of the system include:
- Housing Market Conditions and Trends. Initially, AREA collects and analyzes information on market and neighborhood conditions that affect that city's rental housing market.
- Submarket Areas. Within a city's overall market, AREA carefully defines submarkets, each a collection of neighborhoods with common demographic, socioeconomic, and housing market characteristics.
- Statistically Reliable Analysis. Rent calculations are based on a hedonic pricing model that estimates appropriate local market prices for various rental housing characteristics, conditions, features, and amenities in each city and its housing submarkets.
The model employs statistically reliable analysis of rental rates and unit characteristics. Because each city's housing market is unique, the values attributed to a particular feature differ from city to city. For example, the value of a second bathroom in Philadelphia is not the same as it is in New Orleans.
- Multipurpose Database. The resulting database of rental housing market information and neighborhood characteristics is extremely versatile. In addition, the Philadelphia Housing Authority is using the database not only for pricing Housing Choice Voucher units, but also to assess market trends affecting the Authority's portfolio of conventional and scattered-site properties, and to help identify housing for persons with physical disabilities.
- Substantial Sample Size. The size of the sample is related to the size of the market being analyzed. The sample must be large enough to provide a statistically valid model. For large cities, the sample includes thousands of units.
- Reliable Information on Unit Characteristics. The AREA model incorporates numerous variables that affect rent prices, including unit size (number of bedrooms and bathrooms); location and specific housing submarket; neighborhood category (based on market conditions, neighborhood dynamics, and investment levels); physical condition of the unit; unit amenities and features; utilities and person responsible for them; and building features and amenities.
AREA Rents Effective, User-Friendly Rent Calculation Model
Using Access software, AREA's rent model automatically calculates the appropriate rent for units being leased by a public-housing authority. Features of the rent calculation model include:
- Easy to Use. The model automatically identifies comparable units, calculates a reasonable rent, determines utility consumption and estimates its cost (allowance), and archives all information that was used to determine a lease rate approved by the housing authority.
- Tailored to Local Market Conditions. Unlike most off-the-shelf programs that calculate rents for voucher programs using point systems, producing values that do not vary from market to market, AREA's model uses up-to-date data to determine which housing-unit amenities (e.g., carpeting, dishwasher) and features (e.g., parking) have the greatest impact on housing costs in the local market. Most importantly, the AREA model determines how that particular market values each unit characteristic, amenity, and feature.
- Not Just a Database. AREA's sophisticated software does much more than simply identify comparable properties for specific areas and unit types. When our model calculates rent, that figure is based on specific comparable units and on market-defined values for the differences between the comparable units and the unit being leased.
For example, if a proposed Housing Choice Voucher unit contains a dishwasher but only one of the five comparable units offers this amenity, AREA's model adjusts the rents of the other four units to reflect the absence of a dishwasher before it calculates a rent for the fifth unit's voucher lease agreement. Thus, local analysts don't have to spend time estimating rents based on arbitrary point systems.
- Clear Audit Trail. AREA's rent calculation model carefully archives data used to determine rents, including the comparable units used, their characteristics, and any reasons for adjusting the rent estimated by the model.
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