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Title: The Rent-Price Ratio for the Aggregate Stock of Owner-Occupied Housing

Citation Type: Miscellaneous

Publication Year: 2005

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Abstract: We construct a time series of the rent-price ratio for the owner-occupied stock of housing, starting in 1960:1, by merging micro data from the last five Decennial Censuses of Housing with price indexes for house prices and rents. This paper develops a quarterly time-series, starting in 1960:1, of the ratio of imputed rents of homeowners to the average value of owner-occupied housing-the "rent-price ratio"-for the stock of owner-occupied housing. Little work has been done to estimate a continuous time series of the level of the rent-price ratio for the aggregate stock. 2 The rent-price ratio is the equivalent for residential housing of the earnings-price ratio for stocks, and is thus an important component of housing valuations. The level of the rent-price ratio can be informally compared to some cost of capital, or formally used in asset pricing models, as in Davis and Martin (2004), who show that the Euler equation for pricing housing can be written: ½ ´rent priceµ Ø · Ø Ñ Ø·½´ÔØ·½´Ô Ø·½ Ô Ø µ℄ We use micro data from the last five Decennial Censuses of Housing (DCH) to develop benchmark estimates of aggregate average imputed rents to homeowners, average prices of owned homes, and the aggregate rent-price ratio for the owner-occupied stock. We use quarterly rent-and house price-indexes to interpolate rents and prices, respectively, between DCH benchmarks as well as extrapolate past the 2000 DCH. Benchmark DCH Estimates In each DCH from 1960-2000, a 1 percent sample of household-level data is available on rents paid by renters and the market value of housing units for homeowners. 3 For each DCH, we regress log gross rents of renters (contract rent plus costs for utilities) on a set of hedonics. We then predict gross rents for each owner-occupied property and subtract reported utilities costs to compute net rent. Our estimates of gross rents, utilities expenses, net rents, average prices, and the resulting rent-price ratios (annual rate) are shown in columns (1) through (6) of table 1. 4 1 For comments and suggestions, we would like to thank Josh Gallin, Michael Palumbo and Steve Oliner. The views in this paper are solely the responsibility of the authors and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System or its staff.

Url: https://econwpa.ub.uni-muenchen.de/econ-wp/urb/papers/0509/0509019.pdf

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Authors: Davis, Morris A; Lehnert, Andreas; Martin, Robert F

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Data Collections: IPUMS USA

Topics: Housing and Segregation, Other

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