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The relationships between rent multiplier and user cost - a case study of Taipei

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  • Sun-Tien Wu
  • Chieh-Hsuan Wang

Abstract

The value of Rent Multiplier (RM) for the city of Taipei has been in extraordinary magnitudes and remains to be a myth to most housing economists. Why does the RM in Taipei exhibit such a peculiarity? Is it because the populace there are so peculiar in their housing behaviours that can be held to account for such an extraordinary phenomenon or because there are logically consistent economic factors behind the scene that might have led the people to make their housing choices rather differently from the way usually envisaged by the conventional wisdom in economics? In this article, we try to uncover the myth by examining whether the economic factors such as user cost, vacancy rate and people's disposable income can be held to account for the above-mentioned consequence through a vector error correction model. More specifically, we examine whether there are long-term relationships between those explanatory variables and the RMs in question. The results show that our argument that the extraordinary RM phenomenon can be explained with user cost is empirically verified.

Suggested Citation

  • Sun-Tien Wu & Chieh-Hsuan Wang, 2011. "The relationships between rent multiplier and user cost - a case study of Taipei," Applied Economics Letters, Taylor & Francis Journals, vol. 18(12), pages 1145-1148.
    • Handle: RePEc:taf:apeclt:v:18:y:2011:i:12:p:1145-1148
    DOI: 10.1080/13504851.2010.528348
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    References listed on IDEAS

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    1. James M. Poterba, 1991. "House Price Dynamics: The Role of Tax Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 143-204.
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