What Accounts for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach |
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Authors: | Daisy J Huang Charles Ka Yui Leung Chung-Yi Tse |
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Institution: | 1.Research Institute of Economics and Management,Southwestern University of Finance and Economics,Chengdu,China;2.Department of Economics and Finance,City University of Hong Kong,Kowloon Tong,Hong Kong;3.School of Economics and Finance,University of Hong Kong,Pokfulam,Hong Kong |
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Abstract: | We build an on-the-house search model and show that two frequently used metrics for the housing market, the rent-to-price ratio (or rental yield) and the turnover rate, are jointly determined in equilibrium. We, therefore, estimate a simultaneous equations system on matched sale-rental pairs, as a housing unit cannot be owner-occupied and renter-occupied at the same time. We confirm that a higher turnover rate is associated with a lower rental yield. We also identify a form of “dichotomy” in empirical determinants of rental yields and turnover rates at the estate level: the demographic structure and past returns affect an estate’s turnover rate, while popularity, human capital, mortgage burdens, and long-run rent growth determine its rental yield. The robustness of our results is established through a series of tests. Our popularity index for 130 estates in Hong Kong, estate rankings, and the brand premia of major real estate developers may carry independent interests. |
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