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

  • Robert Hill

    ()

    (University of Graz)

  • Iqbal A. Syed

    ()

    (University of New South Wales)

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.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-45.pdf
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-45.

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Length: 47 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:swe:wpaper:2012-45
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