Hedonic Price-Rent Ratios, User Cost, and Departures from Equilibrium in the Housing Market

Robert Hill () and Iqbal Syed ()

No 2012-45, Discussion Papers from School of Economics, The University of New South Wales

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.

Keywords: Real estate; Housing market; Hedonic model; Price-rent ratio; Rental yield; Quality adjustment; User cost; Capital gains (search for similar items in EconPapers)
JEL-codes: C43 E01 E31 R31 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2012-11
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (6)

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Journal Article: Hedonic price–rent ratios, user cost, and departures from equilibrium in the housing market (2016)
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