Is Housing Overvalued?

Ryan Fox and Peter Tulip
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Ryan Fox: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper examines whether it costs more to own a home or to rent. We argue this is a useful criterion for assessing housing overvaluation. We use a new Australian dataset, which includes prices and rents for matched properties, letting us value housing in levels. We find that if real house prices grow at their historical average pace, then owning a home is about as expensive as renting. If prices grow more slowly, as some forecasters predict, the framework used in this paper suggests that the average home buyer would be financially better off renting. We decompose house prices into contributions from rents, interest rates and expected capital gains, which may help policymakers in the detection of housing bubbles. Recent data do not show signs of a bubble.

Keywords: dwelling prices; housing market; overvaluation; tenure choice; user cost (search for similar items in EconPapers)
JEL-codes: R00 R21 (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-his and nep-ure
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2014-06

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