Estimating Inter-city Differences in the Price of Housing Services: Further Evidence 1

Abstract

This paper reconsiders an approach to inter-area house price index construction applied by Harvey Rosen in a recent article in Urban Studies. Rosen's cost function-based approach is shown to rely upon certain implicit assumptions regarding consumer preferences and housing production technology. Using FHA home purchase data, we estimate a more general production model and generate alternative inter-area indexes. Based on our results, Rosen's production technology assumptions are rejected. Further, the production-theoretic indexes are shown to differ only negligibly from a fixed-weight index using FHA data. Thus the difference which Rosen finds between the production-theoretic FHA and published BLS indexes does not result from Rosen's recognition of substitution in production, but because of very different data sources and scopes of coverage.