Hedonic Price-Rent Ratios, User Cost, and Departures from Equilibrium in the Housing Market
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2171090
Download Document| Date Published | 2012 |
| Version | |
| Primary Author | Robert J. Hill, Iqbal A. Syed |
| Other Authors | |
| Theme | Housing Market & Urban Indicators |
| Country |
Abstract
Departures of the housing market from equilibrium can be detected by comparing the actual price-rent ratio with the user cost of owner occupying. Empirical implementation of this idea, however, is problematic for two reasons. First, the price-rent ratio needs to be quality adjusted. Second, the expected capital gain { an important input into the user cost formula { is not directly observable. Using a large data set for Sydney-Australia, we show how these problems can be resolved using hedonic methods. Otherwise the user cost approach can generate highly misleading results.