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The Housing Stock, Housing Prices, and User Costs: The Roles of Location, Structure and Unobserved Quality

Authors: Jonathan Halket , Lars Nesheim and Florian Oswald
Date: 03 February 2020
Type: cemmap Working Paper, CWP5/20
DOI: 10.1920/wp.cem.2020.520

Abstract

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.

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