Testing for persistence in housing price-to-income and price-to-rent ratios in 16 OECD countries

Housing price-to-income and price-to-rent ratios are among the most widely indicators of housing market conditions. While these ratios tend to around a constant level or a mild trend over the long term, they also tend deviate from these benchmarks for protracted periods. Traditional unit root often indicate the presence of a unit root. This article uses the framework of integration to test the persistence of price-to-income and price-to-rent in a sample of 16 OECD countries spanning four decades. The results that the ratios are highly persistent. The possibility that persistence may be affected by structural breaks in the series is also considered, evidence of such breaks is found only in a very limited number of cases. action may be required if high price-to-income and price-to-rent ratios adverse social and economic consequences. Policies should be guided by a analysis of the factors behind high ratios.