Puzzling Divergence of U.S. Rents and User Costs, 1980-2004: Summary and Extensions
This paper constructs, for the five largest cities in the United States, user costs and rents for the same structure, in levels (i.e., measured in dollars). The levels formulation is a major advantage over indexes since one can answer questions like "Is it cheaper to rent or to own?" or "Are houses overvalued?" because such questions are essentially about the levels of rents and house prices and their fundamentals. These new measures are constructed using Consumer Expenditure Survey (CE) Interview data from 1982 to 2002, along with house price appreciation forecasts from Verbrugge (2007a). Characteristics, current market value, and rental equivalence of owner-occupied housing are used in a regression framework to predict the rent associated with a structure with median characteristics in each city. The property value of this median house is used to construct a user cost estimate for this structure. We find that, for the median structure in each city, estimated user costs and rents diverge to a surprising degree, in keeping with the previously noted findings of Verbrugge (2007a). It is not always cheaper to own: user costs sometimes lie well above rents. Finally, the dynamics of the estimated price-to-rent ratio are generally similar to those found in conventional estimates based upon indexes, suggesting that the present study might be useful for scaling or normalizing other estimates.
|Date of creation:||Oct 2007|
|Date of revision:|
|Contact details of provider:|| Postal: 2 Massachusetts Avenue, N.E. Room 2860, Washington, D. C. 20212|
Phone: (202) 606-5900
Fax: (202) 606-7890
Web page: http://www.bls.gov
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Case, Bradford & Pollakowski, Henry O & Wachter, Susan M, 1997. "Frequency of Transaction and House Price Modeling," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 173-87, Jan.-Marc.
- Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
- Richard A. Ashley & Randal J. Verbrugge, 2009. "To difference or not to difference: a Monte Carlo investigation of inference in vector autoregression models," International Journal of Data Analysis Techniques and Strategies, Inderscience Enterprises Ltd, vol. 1(3), pages 242-274.
- Morris A. Davis & Jonathan Heathcote, 2004.
"The price and quantity of residential land in the United States,"
Finance and Economics Discussion Series
2004-37, Board of Governors of the Federal Reserve System (U.S.).
- Davis, Morris A. & Heathcote, Jonathan, 2007. "The price and quantity of residential land in the United States," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2595-2620, November.
- Jonathan Heathcote & Morris Davis, 2004. "The Price and Quantity of Residential Land in the United States," 2004 Meeting Papers 32, Society for Economic Dynamics.
- Davis, Morris & Heathcote, Jonathan, 2005. "The Price and Quantity of Residential Land in the United States," CEPR Discussion Papers 5333, C.E.P.R. Discussion Papers.
- Antonia Diaz & Maria Jose Luengo Prado, 2008.
"On the User Cost and Homeownership,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 584-613, July.
- Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2007.
"Accounting for changes in the homeownership rate,"
FRB Atlanta Working Paper
2007-21, Federal Reserve Bank of Atlanta.
- Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009. "Accounting For Changes In The Homeownership Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, 08.
- Yoshiro Miwa & Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2004. "Accounting for Changes in the Homeownership Rate," CIRJE F-Series CIRJE-F-312, CIRJE, Faculty of Economics, University of Tokyo.
- Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2007. "Accounting for changes in the homeownership rate," Working Papers 2007-034, Federal Reserve Bank of St. Louis.
- Matthew Chambers & Carlos Garriga, 2005. "Accounting for Changes in the Homeownership Rate," Computing in Economics and Finance 2005 304, Society for Computational Economics.
- Case, Karl E & Shiller, Robert J, 1989.
"The Efficiency of the Market for Single-Family Homes,"
American Economic Review,
American Economic Association, vol. 79(1), pages 125-37, March.
- Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
- Richard A. Ashley. & Randall J. Verbrugge, 2006.
"Frequency Dependence in Regression Model Coefficients: An Alternative Approach for Modeling Nonlinear Dynamic Relationships in Time Series,"
e06-7, Virginia Polytechnic Institute and State University, Department of Economics.
- Richard Ashley & Randal Verbrugge, 2009. "Frequency Dependence in Regression Model Coefficients: An Alternative Approach for Modeling Nonlinear Dynamic Relationships in Time Series," Econometric Reviews, Taylor & Francis Journals, vol. 28(1-3), pages 4-20.
- Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2003.
"Home-buyers, Housing and the Macroeconomy,"
Berkeley Program on Housing and Urban Policy, Working Paper Series
qt0v59r392, Berkeley Program on Housing and Urban Policy.
- Theodore M. Crone & Leonard I. Nakamura & Richard Voith, 2004.
"The CPI for rents: a case of understated inflation,"
04-17, Federal Reserve Bank of Philadelphia.
- Theodore M. Crone & Leonard I. Nakamura & Richard Voith, 2006. "The CPI for rents: a case of understated inflation," Working Papers 06-7, Federal Reserve Bank of Philadelphia.
- Blackley, Dixie M. & Follain, James R., 1996. "In search of empirical evidence that links rent and user cost," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 409-431, June.
- Theodore M. Crone & Leonard I. Nakamura & Richard Voith, 1999.
"Measuring housing services inflation,"
99-9, Federal Reserve Bank of Philadelphia.
When requesting a correction, please mention this item's handle: RePEc:bls:wpaper:ec070080. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gregory Kurtzon)
If references are entirely missing, you can add them using this form.