Do market rents reflect user costs?

Abstract

Although in many countries more than twenty percent of all households rely on the private rental market for housing, the research concerning the fundamentals of rental prices has been limited. Standard capital investment theory states that the market rental price of capital services will equal the user cost of capital in equilibrium. The empirical evidence in support of the rent-user cost equivalence theorem is, however, scarce if not non-existent. We examine the relationship between market rents and the user cost of rental properties based on a unique micro data set on the earnings and costs of Flemish landlords. Robust regression estimates of portfolio-average rental earnings on portfolio-average user costs point to a strong correspondence at the micro-level. In some cases, we find a user cost coefficient which is not significantly different from one together with an intercept estimate which is not significantly different from zero even when we control for landlord characteristics.

Rental equivalence, owner‐occupied housing, and inflation measurement: Microlevel evidence from Ireland

“…Although recent research has argued that using marginal rents is more correct in measuring the opportunity cost of homeownership, that is, price that homeowners would get if they were to put their property on the market, there are also alternative views on this. Both Verbrugge and Poole (2010) and Goeyvaerts and Buyst (2019) indicate that the timing differential between when a homeowner would put their property on the market and the current period mean that they do not receive flex rents or the marginal rent either.…”

How green is your house? Mandatory energy performance certificates and energy consumption

“…Previous research has used the FHS to calculate measures of housing affordability(Heylen, 2021), to evaluate horizontal equity of housing subsidies(Heylen, 2020), to study the link between user costs and rents(Goeyvaerts and Buyst (2019)) and to study the representativeness of other data(Damen andBuyst, 2017, Damen andSchildermans, 2022) among others.…”