Accounting for Housing in a CPI
TL;DR: In this paper, the authors argue that an opportunity cost approach is the correct theoretical framework for accounting for OOH in a CPI and explore the relationship of this new approach to the usual rental equivalency and user cost approaches.
Abstract: Statistical agencies in different nations usually use the rental equivalence approach to the treatment of housing in their CPIs but a few countries use the user cost approach. The paper argues that an opportunity cost approach is the correct theoretical framework for accounting for OOH in a CPI. This approach, first mentioned in a 2006 OECD paper by Diewert, is developed more fully here. We explore the relationship of this new approach to the usual rental equivalency and user cost approaches. The new approach leads to an Owner Occupied Housing Opportunity Cost (OOHOC) index that is a weighted average of the rental and the financial opportunity costs.
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Journal Article•
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TL;DR: In the last few years the situation has considerably changed and there is now a growing interest in Marxism, particularly among the younger social scientists of America as mentioned in this paper, and the book under review falls within this trend.
Abstract: LEAVING aside the courageous efforts of people around Monthly Review and Science and Society there has, by and large, been hardly any Marxist tradition among American intellectuals. However, during the last few years the situation has considerably changed and there is now a growing interest in Marxism, particularly among the younger social scientists of America. The book under review falls within this trend.
900 citations
TL;DR: In this paper, the main criticisms of the hedonic approach are evaluated and compared with those of the repeat-sales and stratified median methods, and the overall conclusion is that the advantages of this approach outweigh its disadvantages, and that greater use needs to be made of spatial econometric and nonparametric methods to exploit the increased availability of geospatial data.
Abstract: Every house is different. It is important that house price indexes take account of these quality differences. Hedonic methods which express house prices as a function of a vector of characteristics (such as number of bedrooms and bathrooms, land area and location) are particularly useful for this purpose. I consider here some developments in the hedonic methodology, as it is applied in a housing context, that have occurred in the last three decades. A number of hedonic house price indexes are now available. However, it is often difficult to see how these indexes relate to each other. For this reason I attempt to impose some structure on the literature by developing a taxonomy of hedonic indexes, and then show how existing indexes fit into this taxonomy. Also discussed are some promising areas for future research in the hedonic field. In particular, greater use needs to be made of spatial econometric and nonparametric methods to exploit the increased availability of geospatial data. The main criticisms of the hedonic approach are evaluated and compared with those of the repeat-sales and stratified median methods. The overall conclusion is that the advantages of the hedonic approach outweigh its disadvantages.
144 citations
Posted Content•
TL;DR: In this paper, the authors summarized the main ideas suggested in the OECD-IMF Workshop on Real Estate Price Indexes which was held in Paris, November 6-7, 2006.
Abstract: The paper summarizes the main ideas suggested in OECD-IMF Workshop on Real Estate Price Indexes which was held in Paris, November 6-7, 2006. The paper discusses possible uses and target indexes for real estate price indexes and notes that a major problem is that it is not possible to exactly match the quality of dwelling units over time due to the fact that the housing stock changes in quality due to renovations and depreciation. Four alternative methods for constructing real estate price indexes are discussed: the repeat sales model; the use of assessment information along with property sale information; stratification methods and hedonic methods. The paper notes that the typical hedonic regression method may suffer from specification bias and suggests a way forward. Problems with the user cost method for pricing the services of owner occupied housing are also discussed.
95 citations
Book•
31 Aug 2012TL;DR: In this article, the authors show that, in the context of U.S. housing data, rents and ex ante user costs diverge markedly in both growth rates and levels for extended periods of time, a seeming failure of arbitrage and a puzzle from the perspective of standard capital theory.
Abstract: This paper demonstrates that, in the context of U.S. housing data, rents and ex ante user costs diverge markedly—in both growth rates and levels—for extended periods of time, a seeming failure of arbitrage and a puzzle from the perspective of standard capital theory. The tremendous volatility of even appropriately-smoothed ex ante annual user cost measures implies that such measures are unsuitable for inclusion in official price statistics. The divergence holds not only at the aggregate level, but at the metropolitan-market level as well, and is robust across different house price and rent measures. But transactions costs matter: the large persistent divergences did not imply the presence of unexploited profit opportunities. In particular, even though detached housing is readily moved between owner and renter markets, and the detached-unit rental market is surprisingly thick, transactions costs would have prevented risk-neutral investors from earning expected profits by buying a property to rent out for a year, and would have prevented risk-neutral homeowners from earning expected profits by selling their homes and becoming renters for a year. Finally, computing implied appreciation as a residual yields a house price forecast with huge errors; but either longer-horizon or no-real-capital-gains forecasts—which turn out to have similar forecast errors—imply a far less divergent user cost measure which might ultimately be useful for official price statistics. Some conjectures are offered.
84 citations
19 Feb 2010
TL;DR: In this paper, the authors demonstrate that, in the context of U.S. housing data, rents and ex ante user costs diverge markedly in both growth rates and levels for extended periods of time, a seeming failure of arbitrage and a puzzle from the perspective of standard capital theory.
Abstract: This paper demonstrates that, in the context of U.S. housing data, rents and ex ante user costs diverge markedly in both growth rates and levels for extended periods of time, a seeming failure of arbitrage and a puzzle from the perspective of standard capital theory. The tremendous volatility of even appropriately-smoothed ex ante annual user cost measures implies that such measures are unsuitable for inclusion in official price statistics. The divergence holds not only at the aggregate level, but at the metropolitan-market level as well, and is robust across different house price and rent measures. But transactions costs matter: the large persistent divergences did not imply the presence of unexploited profit opportunities. In particular, even though detached housing is readily moved between owner and renter markets, and the detached-unit rental market is surprisingly thick, transactions costs would have prevented risk-neutral investors from earning expected profits by buying a property to rent out for a year, and would have prevented risk-neutral homeowners from earning expected profits by selling their homes and becoming renters for a year. Finally, computing implied appreciation as a residual yields a house price forecast with huge errors; but either longer-horizon or no-real-capital-gains forecasts which turn out to have similar forecast errors imply a far less divergent user cost measure which might ultimately be useful for official price statistics. Some conjectures are offered.
82 citations
References
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Book•
15 May 2009
TL;DR: In this paper, the effects of investment in education and training on earnings and employment are discussed. But the authors focus on the relationship between age and earnings and do not explore the relation between education and fertility.
Abstract: "Human Capital" is Becker's study of how investment in an individual's education and training is similar to business investments in equipment. Becker looks at the effects of investment in education on earnings and employment, and shows how his theory measures the incentive for such investment, as well as the costs and returns from college and high school education. Another part of the study explores the relation between age and earnings. This edition includes four new chapters, covering recent ideas about human capital, fertility and economic growth, the division of labour, economic considerations within the family, and inequality in earnings.
12,071 citations
Posted Content•
TL;DR: In this paper, the impact of investments in human capital on an individual's potential earnings and psychic income was analyzed, taking into account varying cultures and political regimes, the research indicates that economic earnings tend to be positively correlated to education and skill level.
Abstract: A diverse array of factors may influence both earnings and consumption; however, this work primarily focuses on the impact of investments in human capital upon an individual's potential earnings and psychic income. For this study, investments in human capital include such factors as educational level, on-the-job skills training, health care, migration, and consideration of issues regarding regional prices and income. Taking into account varying cultures and political regimes, the research indicates that economic earnings tend to be positively correlated to education and skill level. Additionally, studies indicate an inverse correlation between education and unemployment. Presents a theoretical overview of the types of human capital and the impact of investment in human capital on earnings and rates of return. Then utilizes empirical data and research to analyze the theoretical issues related to investment in human capital, specifically formal education. Considered are such issues as costs and returns of investments, and social and private gains of individuals. The research compares and contrasts these factors based upon both education and skill level. Areas of future research are identified, including further analysis of issues regarding social gains and differing levels of success across different regions and countries. (AKP)
7,869 citations
Book•
01 Jan 1976
TL;DR: Becker applied economic analysis to various aspects of human activity, including social interactions; crime and punishment; marriage, fertility, and the family; and "irrational" behavior as discussed by the authors.
Abstract: Since his pioneering Since his pioneering application of economic analysis to racial discrimination, Gary S. Becker has shown that an economic approach can provide a unified framework for understanding all human behavior. In a highly readable selection of essays Becker applies this approach to various aspects of human activity, including social interactions; crime and punishment; marriage, fertility, and the family; and "irrational" behavior.
3,238 citations