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

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  • Robert J. Hill

    ()
    ( Karl-Franzens University of Graz)

  • Iqbal A. Syed

    ()
    (University of New South Wales)

Abstract

Disequilibrium in the housing market can be detected by comparing the actual price-rent ratio with its equilibrium counterpart obtained from the user-cost condition. Empirical implementation of this idea, however, is problematic because of quality differences between sold and rented dwellings. We develop a hedonic method that resolves this problem even in the presence of omitted variables. Applying this method to a data set consisting of 730,000 individual price and rent transactions we find that quality adjusting significantly reduces the actual price-rent ratio. We then insert these quality adjusted price-rent ratios into the user cost condition to check for departures from equilibrium.

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Bibliographic Info

Paper provided by University of Graz, Department of Economics in its series Graz Economics Papers with number 2014-03.

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Date of creation: Mar 2014
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Handle: RePEc:grz:wpaper:2014-03

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Related research

Keywords: House price and rent indexes; Quality adjustment; Hedonic imputation; Capital gains; Fisher index; Real estate market; Rental yield;

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Cited by:
  1. Philippe Bracke, 2013. "House Prices and Rents: Micro Evidence from a Matched Dataset in Central London_x0003_," ERSA conference papers ersa13p112, European Regional Science Association.
  2. Ryan Fox & Peter Tulip, 2014. "Is Housing Overvalued?," RBA Research Discussion Papers rdp2014-06, Reserve Bank of Australia.

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