Differences in Quality of Life Estimates Using Rents and Home Values

Winters, John V (2010): Differences in Quality of Life Estimates Using Rents and Home Values.

Abstract

Implicit values of amenities and the quality of life in an area can be measured by differences in “real wages” across areas, where real wages are computed as nominal wages adjusted for the cost of living. Computing cost of living differences involves several important issues, most important being how housing prices should be measured. Previous researchers typically have used some combination of rental payments and homeowner housing values. This paper examines differences in quality of life estimates for U.S. metropolitan areas using, alternatively, rents and housing values. We find that the two measures of quality of life are highly correlated. Value-based estimates, however, are considerably more dispersed than rent-based estimates, likely because of the recent bubble in the housing market and because housing values often provide an imperfect measure of the present user cost of housing. Researchers should be cautious in using housing values to construct quality of life estimates.

• Item Type: MPRA Paper
• Language: English
• Keywords: quality of life; amenities; rents; housing; wages
• Subjects: R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R23 - Regional Migration ; Regional Labor Markets ; Population ; Neighborhood Characteristics

References

Albouy, D., 2008. Are big cities really bad places to live? Improving quality-of-life estimates across cities. NBER Working Paper No. 14472.

Albouy, D., 2009. The unequal geographic burden of federal taxation. Journal of Political Economy 117(4), 635-667.

Beeson, P.E., Eberts, R.W., 1989. Identifying productivity and amenity effects in interurban wage differentials. Review of Economics and Statistics 71(3), 443-452.

Blomquist, G.C., Berger, M.C., Hoehn, J.P., 1988. New estimates of quality of life in urban areas. American Economic Review 78(1), 89–107.

Chen, Y., Rosenthal, S.S., 2008. Local amenities and life-cycle migration: Do people move for jobs or fun? Journal of Urban Economics, 64(3), 519-537.

Clark, T.E., 1995. Rents and prices of housing across areas of the United States: A cross-section examination of the present value model. Regional Science and Urban Economics 25(2), 237-247.

Davis, M.A., Lehnert, A., Martin, R.F., 2008. The rent-price ratio for the aggregate stock of owner-occupied housing. Review of Income and Wealth 54(2), 279-284.

DuMond, J.M., Hirsch, B.T., Macpherson, D.A., 1999. Wage differentials across labor markets and workers: does cost of living matter? Economic Inquiry 37(4), 577-598.

Gabriel, S.A., Mattey, J.P., Wascher, W.L., 2003. Compensating differentials and evolution in the quality of life among U.S. states. Regional Science and Urban Economics 33(5), 619-649.

Gabriel, S.A., Rosenthal, S.S., 2004. Quality of the business environment versus quality of life: Do firms and households like the same cities? Review of Economics and Statistics 86(1), 438–444.

Garner, T.I., Verbrugge, R., 2009. Reconciling user costs and rental equivalence: Evidence from the US consumer expenditure survey. Journal of Housing Economics 18(3), 172-192.

Glaeser, E.L., Gyourko, J., Saiz, A., 2008. Housing Supply and Housing Bubbles. Journal of Urban Economics 64(2), 198-217.

Gyourko, J., Kahn, M., Tracy, J., 1999. Quality of life and environmental comparisons, in Handbook of Regional and Urban Economics, Volume 3, eds. Cheshire, P., Mills, E.S. Amsterdam: North Holland, 1413-1454.

Gyourko, J., Tracy, J., 1991. The structure of local public finance and the quality of life. Journal of Political Economy 99(4), 774–806.

Henderson, J.V., 1982. Evaluating consumer amenities and interregional welfare differences. Journal of Urban Economics 11(1), 32-59.

Howie, P., Murphy, S.M., Wicks, J., 2010. An application of a stated preference method to value urban amenities. Urban Studies 47(2), 235-256.

Kahn, M.E., 1995. A revealed preference approach to ranking city quality of life. Journal of Urban Economics 38(2), 221-235.

Koo, J., Phillips, K.R., Sigalla, F.D., 2000. Measuring regional cost of living. Journal of Business & Economic Statistics 18(1), 127-136.

Rappaport, J., 2007. Moving to nice weather. Regional Science and Urban Economics 37(3), 375–398.

Rappaport, J., 2009. The increasing importance of quality of life. Journal of Economic Geography 9(6), 779-804.

Roback, J., 1982. Wages, rents, and the quality of life. Journal of Political Economy 90(6), 1257-1278.

Rosen, S., 1979. Wage-based indexes of urban quality of life, in Current Issues in Urban Economics, eds. Mieskowski, P., Straszheim, M. Baltimore: Johns Hopkins University Press, 74-104.

Ruggles, S., Sobek, M., Alexander, T., Fitch, C.A., Goeken, R., Hall, P.K., King, M., Ronnander, C., 2008. Integrated Public Use Microdata Series: Version 4.0. Minneapolis: Minnesota Population Center.

Shapiro, J.M., 2006. Smart cities: Quality of life, productivity, and the growth effects of human capital. Review of Economics and Statistics 88(2), 324-335.

Stover, M.E., Leven, C.L., 1992. Methodological issues in the determination of the quality of life in urban areas. Urban Studies 29(5), 737-754.

Verbrugge, R., 2008. The puzzling divergence of aggregate rents and user costs, 1980–2004. Review of Income and Wealth 54(4), 671–699.

Winters, J.V., 2009. Wages and Prices: Are workers fully compensated for cost of living differences? Regional Science and Urban Economics 39(5), 632-643.

Winters, J.V., Forthcoming. Why are smart cities growing? Who moves and who stays. Journal of Regional Science.