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A New Approach to Measuring Intercity Differences in Housing Costs

Author

Listed:
  • Hyung Joon Chung

    (George Washington University)

  • Nathaniel Harris

    (George Washington University)

Abstract

Intercity housing price indexes that rely on median house price or pooled hedonic regressions adjust imperfectly for differences in housing characteristics. In addition, intercity house price indexes that rely on asset value are a biased measure of differences in the rental price of housing, because capitalization rates vary dramatically across cities. To mitigate these shortcomings, we create Fisher Ideal intercity housing price indexes for both rental and asset prices using a two-way Oaxaca-Blinder decomposition. Our method improves upon current house price indexes by using rental rather than asset prices, controlling for location and housing characteristics, and allowing implicit prices to vary across locations.

Suggested Citation

  • Hyung Joon Chung & Nathaniel Harris, 2021. "A New Approach to Measuring Intercity Differences in Housing Costs," Working Papers 2021-17, The George Washington University, Institute for International Economic Policy.
    • Handle: RePEc:gwi:wpaper:2021-17
    as

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    File URL: https://www2.gwu.edu/~iiep/assets/docs/papers/2021WP/ChungIIEP2021-17.pdf
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    References listed on IDEAS

    as
    1. Min Hwang & John Quigley & Jae-young Son, 2006. "The Dividend Pricing Model: New Evidence from the Korean Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 205-228, May.
    2. Qin, Yu & Zhu, Hongjia & Zhu, Rong, 2016. "Changes in the distribution of land prices in urban China during 2007–2012," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 77-90.
    3. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74(2), pages 132-132.
    4. J. R. Knight & Jonathan Dombrow & C. F. Sirmans, 1995. "A Varying Parameters Approach to Constructing House Price Indexes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(2), pages 187-205, June.
    5. Mitchel B. Rachlis & Anthony M. J. Yezer, 1985. "Urban Location And Housing Price Appreciation," Papers in Regional Science, Wiley Blackwell, vol. 57(1), pages 155-164, January.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Paul E. Carrillo & Anthony Yezer, 2021. "What Do Hedonic House Price Estimates Tell Us When Capitalization Rates Vary?," Working Papers 2021-03, The George Washington University, Institute for International Economic Policy.

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    More about this item

    Keywords

    intercity house price indices; blinder-oaxaca decomposition; Fisher Ideal index; interarea cost of living differences;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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