Housing prices and inter-urban migration

Abstract

Economic theory predicts that individual migration decisions for working-age adults will depend on area differences in wages, housing costs, and amenities. While the importance of wages and amenities is well-established from previous empirical studies, evidence regarding housing costs is far less conclusive. We develop and test a new method for representing housing prices in migration analyses. We first provide conditions under which utility-maximizing housing costs can be specified as a function of individual characteristics, similar to a Mincerian wage equation. Using large samples of individuals from the 2000 PUMS, we estimate the relationship between housing costs and individual attributes for each of 291 metropolitan areas in the U.S. Our approach accounts for rental and ownership decisions, the costs of rental and owned properties, and the costs of holding housing capital. We test our housing cost measure using observations of point-to-point migration decisions for a large sample of college-educated males. Our migration model includes additional controls for the wage each individual expects to earn in each area as well as a large set of area amenities. Our key finding is that our proposed housing cost measure yields the expected results (higher housing prices reduce the probability that an area is selected). We re-estimate the model using three alternative metropolitan area measures of housing costs: median house price, average apartment rent, and average urban land rent. These measures consistently produce counterintuitive positive effects of housing costs on area choice.