- Thursday, November 5
- 4:00 PM
The Price-Rent Ratio During the Boom and Bust: Measurement and Implications
We use micro-level data to study the joint evolution of prices and rents on residential property. We first decompose the change in the price of occupant-owned property into three components: (1) changes in rent; (2) changes in the relative price of investorand occupant-owned property; and (3) changes in the price-rent ratio. We show that (3) accounts for most of the variation and argue that this significant implications for theories of the 2000s housing boom and bust. Using a dataset that allows us to compute it at the property level, we show that the price-rent ratio moves similarly across all property types, but varies significantly by geography. We argue that the latter variation can be partially explained by differing expectations of population growth.