IDEAS home Printed from https://ideas.repec.org/p/ifs/cemmap/73-15.html
   My bibliography  Save this paper

The housing stock, housing prices, and user costs: the roles of location, structure and unobserved quality

Author

Listed:
  • Jonathan Halket

    (Institute for Fiscal Studies and Texas A&M University)

  • Lars Nesheim

    (Institute for Fiscal Studies and University College London)

  • Florian Oswald

    (Institute for Fiscal Studies and cemmap and Sciences Po)

Abstract

Using the English Housing Survey, we estimate a supply side selection model of the allocation of properties to the owner-occupied and rental sectors. We find that location, structure and unobserved quality are important for understanding housing prices, rents and selection. Structural characteristics and unobserved quality are important for selection. Location is not. Accounting for selection is important for estimates of rent-to-price ratios and can explain some puzzling correlations between rent-to-price ratios and homeownership rates. We interpret this as strong evidence in favor of contracting frictions in the rental market likely related to housing maintenance.

Suggested Citation

  • Jonathan Halket & Lars Nesheim & Florian Oswald, 2015. "The housing stock, housing prices, and user costs: the roles of location, structure and unobserved quality," CeMMAP working papers CWP73/15, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:73/15
    as

    Download full text from publisher

    File URL: https://www.ifs.org.uk/uploads/cemmap/wps/cwp731515.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 7-36, October.
    2. Dean H. Gatzlaff & Richard K. Green & David C. Ling, 1998. "Cross-Tenure Differences in Home Maintenance and Appreciation," Land Economics, University of Wisconsin Press, vol. 74(3), pages 328-342.
    3. Florian Oswald, 2019. "The effect of homeownership on the option value of regional migration," Quantitative Economics, Econometric Society, vol. 10(4), pages 1453-1493, November.
    4. Daniel A. Ackerberg & Maristella Botticini, 2002. "Endogenous Matching and the Empirical Determinants of Contract Form," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 564-591, June.
    5. Sweeney, James L., 1974. "Housing unit maintenance and the mode of tenure," Journal of Economic Theory, Elsevier, vol. 8(2), pages 111-138, June.
    6. Philippe Bracke, 2013. "House Prices and Rents: Micro Evidence from a Matched Dataset in Central London_x0003_," ERSA conference papers ersa13p112, European Regional Science Association.
    7. Campbell, John Y. & Cocco, Joao F., 2007. "How do house prices affect consumption? Evidence from micro data," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 591-621, April.
    8. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, March.
    9. Hilber, Christian A.L., 2005. "Neighborhood externality risk and the homeownership status of properties," Journal of Urban Economics, Elsevier, vol. 57(2), pages 213-241, March.
    10. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," The Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
    11. Edward L. Glaeser & Jesse M. Shapiro, 2003. "The Benefits of the Home Mortgage Interest Deduction," NBER Chapters, in: Tax Policy and the Economy, Volume 17, pages 37-82, National Bureau of Economic Research, Inc.
    12. Kaiji Chen, 2010. "A Life-Cycle Analysis of Social Security with Housing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 597-615, July.
    13. Goodman, Allen C., 1988. "An econometric model of housing price, permanent income, tenure choice, and housing demand," Journal of Urban Economics, Elsevier, vol. 23(3), pages 327-353, May.
    14. Davis, Morris A. & Palumbo, Michael G., 2008. "The price of residential land in large US cities," Journal of Urban Economics, Elsevier, vol. 63(1), pages 352-384, January.
    15. Randal Verbrugge, 2008. "The Puzzling Divergence Of Rents And User Costs, 1980–2004," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(4), pages 671-699, December.
    16. Philippe Bracke, 2015. "House Prices and Rents: Microevidence from a Matched Data Set in Central London," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 403-431, June.
    17. Michael Amior & Jonathan Halket, 2014. "Do households use home‐ownership to insure themselves? Evidence across U.S. cities," Quantitative Economics, Econometric Society, vol. 5(3), pages 631-674, November.
    18. Iacoviello, Matteo & Pavan, Marina, 2013. "Housing and debt over the life cycle and over the business cycle," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 221-238.
    19. Rosen, Harvey S., 1979. "Housing decisions and the U.S. income tax : An econometric analysis," Journal of Public Economics, Elsevier, vol. 11(1), pages 1-23, February.
    20. Edward L. Glaeser & Joseph Gyourko, 2007. "Arbitrage in Housing Markets," NBER Working Papers 13704, National Bureau of Economic Research, Inc.
    21. Lee, Lung-Fei & Trost, Robert P., 1978. "Estimation of some limited dependent variable models with application to housing demand," Journal of Econometrics, Elsevier, vol. 8(3), pages 357-382, December.
    22. Matt Chambers & Carlos Garriga & Don Schlagenhauf, 2009. "The Loan Structure and Housing Tenure Decisions in an Equilibrium Model of Mortgage Choice," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 444-468, July.
    23. Kan, Kamhon, 2000. "Dynamic Modeling of Housing Tenure Choice," Journal of Urban Economics, Elsevier, vol. 48(1), pages 46-69, July.
    24. 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.
    25. Thesia I. Garner & Randal Verbrugge, 2007. "Puzzling Divergence of U.S. Rents and User Costs, 1980-2004: Summary and Extensions," Working Papers 409, U.S. Bureau of Labor Statistics.
    26. 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.
    27. Hanson, Andrew, 2012. "Size of home, homeownership, and the mortgage interest deduction," Journal of Housing Economics, Elsevier, vol. 21(3), pages 195-210.
    28. John Harding & Thomas J. Miceli & C.F. Sirmans, 2000. "Do Owners Take Better Care of Their Housing Than Renters?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(4), pages 663-681.
    29. Heston, Alan & Nakamura, Alice O., 2009. "Questions about the equivalence of market rents and user costs for owner occupied housing," Journal of Housing Economics, Elsevier, vol. 18(3), pages 273-279, September.
    30. Matteo Pignatti & Jonathan Halket, 2014. "Homeownership and the Scarcity of Rentals," 2014 Meeting Papers 1057, Society for Economic Dynamics.
    31. Dennis Epple & Luis Quintero & Holger Sieg, "undated". "Estimating Hedonic Functions for Rents and Values in the Presence of Unobserved Heterogeneity in the Quality for Housing," GSIA Working Papers 2013-E26, Carnegie Mellon University, Tepper School of Business.
    32. Laura Blow & Lars Nesheim, 2009. "Dynamic housing expenditures and household welfare," CeMMAP working papers CWP04/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    33. Stephen Malpezzi & Larry Ozanne & Thomas G. Thibodeau, 1987. "Microeconomic Estimates of Housing Depreciation," Land Economics, University of Wisconsin Press, vol. 63(4), pages 372-385.
    34. Kanemoto, Yoshitsugu, 1990. "Contract types in the property market," Regional Science and Urban Economics, Elsevier, vol. 20(1), pages 5-22, June.
    35. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    36. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
    37. Pablo Casas-Arce & Albert Saiz, 2010. "Owning versus Renting: Do Courts Matter?," Journal of Law and Economics, University of Chicago Press, vol. 53(1), pages 137-165, February.
    38. Campbell, Sean D. & Davis, Morris A. & Gallin, Joshua & Martin, Robert F., 2009. "What moves housing markets: A variance decomposition of the rent-price ratio," Journal of Urban Economics, Elsevier, vol. 66(2), pages 90-102, September.
    39. Poterba, James M, 1992. "Taxation and Housing: Old Questions, New Answers," American Economic Review, American Economic Association, vol. 82(2), pages 237-242, May.
    40. Randal Verbrugge, 2008. "The Puzzling Divergence Of Rents And User Costs, 1980–2004," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(4), pages 671-699, December.
    41. Dennis Epple & Luis Quintero & Holger Sieg, 2020. "A New Approach to Estimating Equilibrium Models for Metropolitan Housing Markets," Journal of Political Economy, University of Chicago Press, vol. 128(3), pages 948-983.
    42. Linneman, Peter, 1985. "An economic analysis of the homeownership decision," Journal of Urban Economics, Elsevier, vol. 17(2), pages 230-246, March.
    43. Halket, Jonathan & Pignatti Morano di Custoza, Matteo, 2015. "Homeownership and the scarcity of rentals," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 107-123.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Geoffrey K. Turnbull & Arno J. van der Vlist, 2023. "After the Boom: Transitory and Legacy Effects of Foreclosures," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 422-442, February.
    2. Howard, Greg & Liebersohn, Jack & Ozimek, Adam, 2023. "The short- and long-run effects of remote work on U.S. housing markets," Journal of Financial Economics, Elsevier, vol. 150(1), pages 166-184.
    3. Cathal Coffey & Kieran McQuinn & Conor O'Toole, 2022. "Rental equivalence, owner‐occupied housing, and inflation measurement: Microlevel evidence from Ireland," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(4), pages 990-1021, December.
    4. Carlos Garriga & Aaron Hedlund, 2019. "Crises in the Housing Market: Causes, Consequences, and Policy Lessons," Working Papers 2019-33, Federal Reserve Bank of St. Louis.
    5. Allen Head & Huw Lloyd‐Ellis & Derek Stacey, 2023. "Heterogeneity, Frictional Assignment, And Home‐Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(3), pages 1265-1308, August.
    6. Brian Adams & Randal Verbrugge, 2020. "Location, Location, Structure Type: Rent Divergence within Neighborhoods," Economic Working Papers 533, Bureau of Labor Statistics.
    7. Ahlfeldt, Gabriel M. & Heblich, Stephan & Seidel, Tobias, 2023. "Micro-geographic property price and rent indices," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    8. Geoffrey K. Turnbull & Arno J. van der Vlist, 2022. "Bargaining power and segmented markets: Evidence from rental and owner‐occupied housing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(5), pages 1307-1333, September.
    9. Daniel Levy & Avichai Snir, 2018. "Here Lives a Wealthy Man: Price Rigidity and Predictability in Luxury Housing Markets," Working Paper series 18-16, Rimini Centre for Economic Analysis.
    10. António Duarte Santos & Hélio Castro, 2022. "Housing and Setting Constraints: The Portuguese Evidence," Sustainability, MDPI, vol. 14(18), pages 1-14, September.
    11. repec:grz:wpaper:2019-05 is not listed on IDEAS
    12. Aaron Hedlund, 2018. "Down Payments and the Homeownership Dream: Not Such a Barrier After All?," Working Papers 1806, Department of Economics, University of Missouri.
    13. Vera Baye & Valeriya Dinger, 2023. "Investment incentives of rent controls and gentrification – Evidence from German micro data," IEER Working Papers 122, Institute of Empirical Economic Research, Osnabrueck University.
    14. Adam M. Guren & Arvind Krishnamurthy & Timothy J. Mcquade, 2021. "Mortgage Design in an Equilibrium Model of the Housing Market," Journal of Finance, American Finance Association, vol. 76(1), pages 113-168, February.
    15. repec:grz:wpaper:2017-12 is not listed on IDEAS
    16. Carozzi, Felipe, 2020. "Credit constraints and the composition of housing sales. Farewell to first-time buyers?," LSE Research Online Documents on Economics 91193, London School of Economics and Political Science, LSE Library.
    17. Ross Batzer, 2023. "Mortgage Debt and the Consumption Response to Fiscal Transfers," FHFA Staff Working Papers 23-07, Federal Housing Finance Agency.
    18. Baye, Vera & Dinger, Valeriya, 2022. "Investment Incentives of Rent Controls and Gentrification - Evidence from German Micro Data," VfS Annual Conference 2022 (Basel): Big Data in Economics 264120, Verein für Socialpolitik / German Economic Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:spo:wpmain:info:hdl:2441/4dp533k0lq8dgrbgue1eid6mk1 is not listed on IDEAS
    2. Jonathan Halket & Lars Nesheim & Florian Oswald, 2015. "The housing stock, housing prices, and user costs," SciencePo Working papers Main hal-03393224, HAL.
    3. repec:hal:spmain:info:hdl:2441/4dp533k0lq8dgrbgue1eid6mk1 is not listed on IDEAS
    4. Jonathan Halket & Lars Nesheim & Florian Oswald, 2015. "The housing stock, housing prices, and user costs," Working Papers hal-03393224, HAL.
    5. Halket, Jonathan & Pignatti Morano di Custoza, Matteo, 2015. "Homeownership and the scarcity of rentals," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 107-123.
    6. Jonathan Halket & Lars Nesheim & Florian Oswald, 2015. "A Selection Model of Hedonic House Values and Rents," ERSA conference papers ersa15p932, European Regional Science Association.
    7. Allen Head & Huw Lloyd‐Ellis & Derek Stacey, 2023. "Heterogeneity, Frictional Assignment, And Home‐Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(3), pages 1265-1308, August.
    8. Halket, Jonathan R & Pignatti, Matteo, 2012. "Housing tenure choices with private information," Economics Discussion Papers 8961, University of Essex, Department of Economics.
    9. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    10. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 753-811, Elsevier.
    11. repec:esx:essedp:712 is not listed on IDEAS
    12. Halket, Jonathan R & Vasudev, Santhanagopalan, 2012. "Home Ownership, Savings, and Mobility Over The Life Cycle," Economics Discussion Papers 2876, University of Essex, Department of Economics.
    13. Jonathan Halket & Santhanagopalan Vasudev, 2014. "Saving Up or Settling Down: Home Ownership over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 345-366, April.
    14. repec:esx:essedp:717 is not listed on IDEAS
    15. Garner, Thesia I. & Verbrugge, Randal, 2009. "Reconciling user costs and rental equivalence: Evidence from the US consumer expenditure survey," Journal of Housing Economics, Elsevier, vol. 18(3), pages 172-192, September.
    16. Philippe Bracke, 2015. "House Prices and Rents: Microevidence from a Matched Data Set in Central London," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 403-431, June.
    17. Goodness C. Aye & Rangan Gupta, 2019. "Macroeconomic Uncertainty And The Comovement In Buying Versus Renting In The Usa," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(3), pages 93-121, September.
    18. Charles Ka Yui Leung & Joe Cho Yiu Ng, 2018. "Macro Aspects of Housing," GRU Working Paper Series GRU_2018_016, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    19. Patrick Bajari & Phoebe Chan & Dirk Krueger & Daniel Miller, 2013. "A Dynamic Model Of Housing Demand: Estimation And Policy Implications," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 409-442, May.
    20. Fernández-Villaverde, Jesús & Krueger, Dirk, 2011. "Consumption And Saving Over The Life Cycle: How Important Are Consumer Durables?," Macroeconomic Dynamics, Cambridge University Press, vol. 15(5), pages 725-770, November.
    21. Hanson, Andrew, 2012. "Size of home, homeownership, and the mortgage interest deduction," Journal of Housing Economics, Elsevier, vol. 21(3), pages 195-210.
    22. Philippe Bracke, 2021. "How Much Do Investors Pay for Houses?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S1), pages 41-73, March.
    23. Yanbin Chen & Fangxing Li & Zhesheng Qiu, 2013. "Housing and Saving with Finance Imperfection," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 207-248, May.
    24. David Albouy, 2009. "The Unequal Geographic Burden of Federal Taxation," Journal of Political Economy, University of Chicago Press, vol. 117(4), pages 635-667, August.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ifs:cemmap:73/15. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emma Hyman (email available below). General contact details of provider: https://edirc.repec.org/data/cmifsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.