Which housing characteristics are important for understanding homeownership rates? How are housing characteristics priced in the rental and owner-occupied markets? And what can the answers to the previous questions tell us about economic theories of homeownership? Using the English Housing Survey, we estimate a selection model of the allocation of properties to the owner-occupied and rental sectors. 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. These patterns are consistent with, among others, hypotheses of contracting frictions in the rental market likely related to housing maintenance.
Centre for microdata methods and practice