Property Mass Valuation on Small Markets

Массовая оценка недвижимости на малых рынках
Sebastian Gnat
2021-04-08

K-nearest neighbor regressionXGBoost regressionmachine learningproperty mass valuationsmall real estate markets
The main bases for land taxation are its area or value. In many countries, especially in Eastern Europe, reforms of property taxation, including land taxation, are being carried out or planned, introducing property value as a tax base. Practice and research in this area indicate that such a change in the tax system leads to large changes in land use and reallocation. The taxation of land value requires construction of mass valuation system. Different methodological solutions can serve this purpose. However, mass land valuation requires a large amount of information on property transactions. Such data are not available in every case. The main objective of the paper is to evaluate the possibility of applying selected algorithms of machine learning and a multiple regression model in property mass valuation on small, underdeveloped markets, where a scarce number of transactions takes place or those transactions demonstrate little volatility in terms of real property attributes. A hypothesis is verified according to which machine learning methods result in more accurate appraisals than multiple regression models do, considering the size of training datasets. Three types of models were employed in the study: a multiple regression model, k nearest neighbor regression algorithm and XGBoost regression algorithm. Training sets were drawn from a larger dataset 1000 times in order to draw conclusions for averaged results. Thanks to the application of KNN and XGBoost algorithms, it was possible to obtain models much more resistant to a low number of observations, a substantial number of explanatory variables in relation to the number of observations, a low property attributes variability in the training datasets as well as collinearity of explanatory variables. This study showed that algorithms designed for large datasets can provide accurate results in the presence of a limited amount of data. This is a significant observation given that small or underdeveloped real estate markets are not uncommon.
1
KNN and XGBoost produced models more resistant than multiple regression to few observations, many explanatory variables, low attribute variability, and collinearity.
2
Machine-learning algorithms designed for large datasets can still provide accurate property valuations when transaction data are limited.
3
Repeatedly sampling training sets 1,000 times enabled comparison of averaged model accuracy across different training-dataset sizes.
4
The findings support applying machine-learning methods to mass valuation where small markets lack sufficient transaction information.
5
The study evaluates multiple regression, k-nearest neighbor regression, and XGBoost for mass property valuation on small, underdeveloped markets.

Property mass valuation on small, underdeveloped real estate markets with scarce and low-variability transaction data

The comparative accuracy and robustness of machine-learning and multiple-regression valuation models under limited training data, low attribute variability, many explanatory variables, and collinearity

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2021-04-08
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Sebastian Gnat
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