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

Posted: 12 Oct 2018

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

Date Written: September 20, 2018

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 for130 estates in Hong Kong, estate rankings, and the brand premia of major real estate developers may carry independent interests.

Keywords: Housing Rental Yield; Turnover Rate; Bootstrap; Leave-One-Out Cross-Validation; Matching Estimator; 3-Stage Least Squares

Suggested Citation

Huang, Daisy and Leung, Charles Ka Yui and Tse, Chung, What Accounts for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach (September 20, 2018). Journal of Real Estate Finance and Economics, Vol. 57, No. 3, 2018, Available at SSRN: https://ssrn.com/abstract=3252539

Daisy Huang (Contact Author)

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

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Charles Ka Yui Leung

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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