Housing Careers, Price–Rent Ratios and Rental Equivalence

This paper analyses price–rent (PR) ratios under different housing career structures. A housing market with three segments for owner-occupation and a segment with rental housing is applied. A housing career is characterized by how households move between rentals and owner-occupied housing. While rents are completely passed through to the house price index when rentals represent alternative housing to all forms of owner-occupation, non-constant PR ratios are derived from more realistic housing career structures. In the presence of equity induced up-trading housing markets dominated by family homes are likely to see short-term deviations in PR ratios exceeding those of housing markets dominated by starter homes.