Artificial neural networks and geostatistical models for housing valuations in urban residential areas

ABSTRACT Property valuation studies often use classical statistics techniques. Among these techniques, the Artificial Neural Networks are the most applied, overcoming the inflexibility and the linearity of the hedonic models. Other researchers have used Geostatistics techniques, specifically the Kriging Method, for interpreting spatial-temporal variability and to predict housing unit prices. The innovation of this study is to highlight how the Kriging Method can help to better understand the urban environment, improving the results obtained by classical statistics. This study presents two different methods that share the general objective of extracting information regarding a city’s housing from datasets. The procedures applied are Ordinary Kriging (Geostatistics) and Multi-Layer Perceptron algorithm (Artificial Neural Networks). These methods were used to predict housing unit prices in the municipality of Pozuelo de Alarcon (Madrid). The implementation of both methods provides us with the urban characteristics of the study area and the most significant variables related to price. The main conclusion is that the Ordinary Kriging models and the Neural Networks models, applied to predicting housing unit prices are necessary methodologies to improve the information obtained in classical statistical techniques. Abbreviations: ANN: Artificial Neural Networks; OK: ordinary Kriging; MLP: multi-layer perceptron