Construction of a Spatial Housing Price Index by Estimating an Almost Ideal Demand System

The aim of this article is to build a spatial housing price index for the Chilean communes (the commune political body similar to a municipality or county). The first step is to recover hedonic prices of three housing attributes by estimating a mixed index model (Bowden, 1992) using a generalized method of moments procedure. Secondly, a censored almost ideal demand system (Deaton and Muellbauer, 1980) is estimated to build expenditures for every commune and to compare them among different spatial units, while maintaining a constant utility level. Using micro data from the 2009 CASEN survey, we show that there are important differences in housing prices among Chilean communes and the axiomatic approach tends to understate spatial index compared to economic approach.