Revisiting the House Price-Income Relationship

Elias Oikarinen, Steven Bourassa, Martin Hoesli and Janne Engblom

ERES from European Real Estate Society (ERES)

Abstract: We undertake a systematic analysis of the relationship between house prices and personal income using data for the 50 largest U.S. Metropolitan Statistical Areas (MSAs). We apply state-of-the-art panel data analysis tools, define income in multiple ways, allow for regional heterogeneity, and control for spatial dependence and endogeneity. We find that the house price-income ratio is not stable in the long run for most cities. In contrast, panel regression models that allow for regional heterogeneity and control for cross-sectional dependence yield stationary equations for MSA house prices. Among other findings, we show that relying on panel unit root tests is problematic. We also show that it is important to allow for heterogeneity across locations and to cater for endogeneity and cross-sectional dependence when analyzing the relationship between house prices and income.

Keywords: cross-sectional dependence; House Prices; Panel Data; personal income; regional heterogeneity (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2017-07-01
New Economics Papers: this item is included in nep-ure
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Related works:
Working Paper: Revisiting the House Price-Income Relationship (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2017_173

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