A New Perspective on the Relationship Between House Prices and Income

Quan Gan () and Robert Hill ()
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Quan Gan: School of Economics, University of New South Wales

No 2008-13, Discussion Papers from School of Economics, The University of New South Wales

Abstract: We show that a strong linear relationship exists between income and house price quantiles in Sydney (Australia), Houston, and the state of Texas. This suggests that the house price distribution is closely approximated by the income distribution after a location-scale transformation. The slope of the line changes over time in response to changes in the mortgage market. We argue that this finding is consistent with a simple variant on the permanent income hypothesis. We then explore some of the implications with regard to the evolution of house prices, price-to-income ratios, the efficiency of the housing market, the construction and interpretation of hedonic price indexes for housing, and for public policy.

Keywords: Real Estate; Permanent income; Mortgage market; Housing bubble; Hedonic index (search for similar items in EconPapers)
JEL-codes: C43 E01 E31 G12 R31 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-08
New Economics Papers: this item is included in nep-geo, nep-mac and nep-ure
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:swe:wpaper:2008-13

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