FIBO: A New Approach to Measuring Intercity Differences in Housing Costs

82 Pages Posted: 2 Sep 2021 Last revised: 16 Oct 2021

See all articles by Nathaniel Harris

Nathaniel Harris

George Washington University, Department of Economics, Students

Hyung Joon Chung

George Washington University, Department of Economics, Students

Date Written: October 15, 2021

Abstract

Intercity housing price indexes that rely on median house price or pooled hedonic regressions adjust imperfectly for differences in housing characteristics. Single equation hedonic methods produce estimates of intercity differences that vary substantially with the specific cities in the regression, the sample sizes from each city, and/or the housing characteristics used. To mitigate these shortcomings, we create intercity housing price indexes for both rental and asset prices, which is a Fisher Ideal aggregation of a two-way Blinder-Oaxaca decomposition, the FIBO index. Our method improves upon current house price indexes because it is far less influenced by the cities studied, sample sizes from each city, and housing characteristics included. We also find, as predicted by Carrillo and Yezer (2021), that asset prices substantially overstate variation in rental prices across cities.

Keywords: Intercity housing price indexes, Oaxaca-Blinder decomposition, Fisher Ideal index, Interarea cost of living differences

JEL Classification: C1, R1, R3

Suggested Citation

Harris, Nathaniel and Chung, Hyung Joon, FIBO: A New Approach to Measuring Intercity Differences in Housing Costs (October 15, 2021). Available at SSRN: https://ssrn.com/abstract=3914797 or http://dx.doi.org/10.2139/ssrn.3914797

Nathaniel Harris (Contact Author)

George Washington University, Department of Economics, Students ( email )

Washington, DC 20052
United States

Hyung Joon Chung

George Washington University, Department of Economics, Students ( email )

Washington, DC 20052
United States

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