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Estimating Estate-Specific Price-to-Rent Ratios in Shanghai and Shenzhen: A Bayesian Approach

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Abstract

The price-to-rent ratio, a common yardstick for the value of housing, is difficult to estimatewhen rental properties are poor substitutes of owner-occupied homes. In this study weestimate price-to-rent ratios of residential properties in two major cities in China, where urbanhigh-rises (estates) comprise both rental and owner-occupied units. We conduct Bayesianinference on estate-specific parameters, using information of rental units to elicit priors of theunobserved rents of units sold in the same estate. We find that the price-to-rent ratios tendto be higher for low-end properties. We discuss economic explanations for the phenomenonand the policy implications.

Suggested Citation

  • Shawn Ni & Jie Chen, 2010. "Estimating Estate-Specific Price-to-Rent Ratios in Shanghai and Shenzhen: A Bayesian Approach," Working Papers 1015, Department of Economics, University of Missouri.
    • Handle: RePEc:umc:wpaper:1015
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    as
    1. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    2. Dufour, Jean-Marie & Jasiak, Joann, 2001. "Finite Sample Limited Information Inference Methods for Structural Equations and Models with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 815-843, August.
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    More about this item

    Keywords

    Housing price; rents; heterogeneity; Bayesian analysis;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • G00 - Financial Economics - - General - - - General

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