Revisiting Metropolitan House Price-Income Relationships

42 Pages Posted: 21 Apr 2021

See all articles by Elias Oikarinen

Elias Oikarinen

University of Oulu - Oulu Business School; University of Turku, Department of Economics

Steven C. Bourassa

Florida Atlantic University

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School

Janne Engblom

University of Turku - Turku School of Economics

Date Written: April 20, 2021

Abstract

We explore long-term patterns of the house price-income relationship across the 70 largest U.S. metropolitan areas. In line with a standard spatial equilibrium model, our empirical findings indicate that house price-income ratios are typically not stable even over the long run. In contrast, panel regression models that relate house prices to aggregate personal income and allow for regional heterogeneity yield stationary long-term relationships in most areas. The relationship between house prices and income varies significantly across locations, underscoring the importance of using estimation techniques that allow for spatial heterogeneity. The substantial differences across metropolitan areas are closely related to the price elasticity of housing supply.

Keywords: House prices; Personal income; Spatial equilibrium; Regional heterogeneity; Supply elasticity

JEL Classification: C33, R10, R31

Suggested Citation

Oikarinen, Elias and Bourassa, Steven C. and Hoesli, Martin Edward Ralph and Engblom, Janne, Revisiting Metropolitan House Price-Income Relationships (April 20, 2021). Swiss Finance Institute Research Paper No. 21-32, Available at SSRN: https://ssrn.com/abstract=3830512 or http://dx.doi.org/10.2139/ssrn.3830512

Elias Oikarinen

University of Oulu - Oulu Business School ( email )

Finland

University of Turku, Department of Economics ( email )

Turku, FIN-20500
Finland

Steven C. Bourassa

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States
5028077642 (Phone)

Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Janne Engblom

University of Turku - Turku School of Economics ( email )

Rehtorinpellonkatu 3
TURKU, FI-20500
Finland

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