This paper investigates the effect of homeowner maintenance and improv
ements on the depreciation rate for housing and on house price indexes
. We examine three specifications of a hedonic house price model: one
that includes a variable for age, as a proxy for depreciation, and an
age-maintenance interaction variable; one that considers depreciation
but ignores maintenance; and one that ignores both depreciation and ma
intenance. The remarks of the listing agent as to the property's condi
tion is our proxy for the level of maintenance characterizing the home
. In our sample, we find that poorly maintained homes depreciate at a
much faster rate than do homes with average maintenance, and that well
-maintained homes depreciate somewhat more slowly. Omitting maintenanc
e from the variable specification has little impact on hedonic house p
rice indexes constructed with our data, but failing to consider dwelli
ng age imparts a significant and growing downward bias to the indexes.
Monte Carlo simulations investigating various data specifications sup
port our empirical findings. (C) 1996 Academic Press, Inc.