Abstract
AbstractWhich housing characteristics are important for understanding homeownership rates? How are housing characteristics priced in rental and owner‐occupied markets? What can answers to these questions tell us about economic theories of homeownership? Using the English Housing Survey, we estimate a selection model of property allocations to the owner‐occupied and rental sectors. Structural characteristics and unobserved quality are important for selection. Location is not. Accounting for selection is important for rent‐to‐price ratio estimates and explains some puzzling correlations between rent‐to‐price ratios and homeownership rates. These patterns are consistent with, among others, hypotheses of rental market contracting frictions related to housing maintenance.
Highlights
Which housing characteristics are important for understanding homeownership rates? How are housing characteristics priced in rental and owner-occupied markets? What can answers to these questions tell us about economic theories of homeownership? Using the English Housing Survey, we estimate a selection model of property allocations to the owner-occupied and rental sectors
We ask a set of very simple questions: Which housing characteristics are important for the allocation of properties to the rental and owner-occupied markets? Conditional on that allocation, how are housing characteristics priced in the rental and owneroccupied markets? And what can the answers to the previous questions tell us about economic theories of homeownership?
We show that selection on unobservables is important and that controlling for unobserved quality has important impacts on predictions for how property values, rents, and ownership rates vary with observable locational and structural characteristics
Summary
Notes: Market shares are computed using sampling weights for each wave. London refers to the Greater London sample area. Notes: Market shares are calculated using data and sampling weights from the 2011 wave of the EHS. We present summary statistics for the owner-occupied, private rental, and social housing sectors. In England in Wave 2011 (2008–2010), 67.9% of housing units were owner-occupied units, whereas 14.3% were private rentals and 17.8% were social housing. Within 10 km of the center, the owner-occupied share is 37.9%, whereas the private rented and social housing shares are 23.7% and 38.4%, respectively. More than 50 km from the center, the owner-occupied share is 72.9%, whereas the rental and social housing shares decline to 13.4% and 13.7%, respectively. Semidetached and detached houses and bungalows are much more likely to be in the owner-occupied sector, whereas converted flats and dwellings in multiunit structures are more likely to be in
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