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Title: The Price-to-income Ratio and the Quality of Life

Citation Type: Working Paper

Publication Year: 2011

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Abstract: This paper argues that a cross-city comparison of price-to-income ratios overestimates the bubble in high QOL (quality of life) cities. The theory is based on Roback(1982). In high QOL cities people are willing to pay high housing rents and get paid lower wages. This would lead to higher price-to-income ratios even if there were no bubble. We test the theory using data. The challenge is that expected price growth rate may be correlated with QOL across cities. We use our model to disentangle these two effects. Our empirical results show that the QOL bias is significant.

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Authors: Lee, Sanghoon; You, Seung D.

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Institution: Saunder School of Business, University of British Columbia

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Data Collections: IPUMS USA

Topics: Other

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