What Account for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach

106 Pages Posted: 3 Feb 2017

See all articles by Daisy Huang

Daisy Huang

Southwestern University of Finance and Economics (SWUFE)

Charles K. Leung

City University of Hong Kong

Chung-Yi Tse

The University of Hong Kong - School of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 3, 2017

Abstract

We build an on-the-house-search model and show analytically that the rent-to-price ratio (or rental yield) and turnover rate, which are frequently used metrics for the housing market, are jointly determined in equilibrium. We therefore adopt a simultaneous equation approach on matched sale-rental pairs in our empirical investigation, as a housing unit cannot be owner-occupied and renter-occupied at the same time. Our empirical results confirm a higher turnover rate is associated with a lower rent-to-price ratio, as predicted by the model. Furthermore, our results suggest a form of “dichotomy” in the empirical determinants of rental yield and turnover at the real-estate-development (RED) level: the demographic structure, and past return performance affect its turnover rate, while popularity, human capital environment, mortgage burden, and long run rent growth determine the rental yield. No evidence of “thick market effect” is found. The robustness of our results are established through a series of tests. In addition to these findings, our tractable search-theoretic model, a ranking of more than 130 RED in Hong Kong based on the popularity index we construct, and the estimated brand-premium for different major real estate developers may also carry independent research and practical interests.

Keywords: housing rental yield, turnover rate, bootstrap, leave-one-out cross validation (LOOCV), matching estimator, 3 stages least squares (3SLS)

JEL Classification: D10, G10, R21

Suggested Citation

Huang, Daisy and Leung, Charles Ka Yui and Tse, Chung, What Account for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach (February 3, 2017). ISER Discussion Paper No. 990, Available at SSRN: https://ssrn.com/abstract=2910804 or http://dx.doi.org/10.2139/ssrn.2910804

Daisy Huang

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Charles Ka Yui Leung (Contact Author)

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Chung Tse

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
+852 2859 1035 (Phone)
+852 2548 1152 (Fax)

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