A New Approach to Measuring Intercity Differences in Housing Costs

Intercity housing price indexes that rely on median house price or pooled hedonic regressions adjust imperfectly for differences in housing characteristics. In addition, intercity house price indexes that rely on asset value are a biased measure of differences in the rental price of housing, because...

Full description

Saved in:
Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Chung, Hyung Joon, Harris, Nathaniel
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2021
Subjects
Housing
Prices
Online AccessGet full text

Cover

More Information
Summary:Intercity housing price indexes that rely on median house price or pooled hedonic regressions adjust imperfectly for differences in housing characteristics. In addition, intercity house price indexes that rely on asset value are a biased measure of differences in the rental price of housing, because capitalization rates vary dramatically across cities. To mitigate these shortcomings, we create Fisher Ideal intercity housing price indexes for both rental and asset prices using a two-way Oaxaca-Blinder decomposition. Our method improves upon current house price indexes by using rental rather than asset prices, controlling for location and housing characteristics, and allowing implicit prices to vary across locations.