Sunday , April 18 2021
Home / Managerial Econ / Which cities have the cheapest house prices?

Which cities have the cheapest house prices?

Summary:
From chapter 9, we know that in the long run a mobile asset has to be indifferent to where it is used, otherwise it will move.  This long-run indifference principle means that in the long run, you should be indifferent about where to live and whether to own or rent.  In particular, the price-to-rent ratios should reflect this "indifference," and be  similar across cities.  However, this is is certainly not the case.  Here are the most expensive cities:CityPrice-to-RentRatioHome Price(for a ,000 Rental)San Francisco, California50.111,362Oakland, California41.052,611Honolulu, Hawaii39.504,014Los Angeles, California38.593,135New York, New York36.831,987Long Beach, California36.376,385Seattle, Washington36.072,862San Jose, California33.775,263Washington,

Topics:
(Luke Froeb) considers the following as important:

This could be interesting, too:

(Luke Froeb) writes Restrictive zoning causes segregatation in Connecticut

(Luke Froeb) writes Is the recent 10% house price increase going to stick?

(Luke Froeb) writes Housing Bubble-ology: is this time different?

(Luke Froeb) writes Consequentialist critique of California Housing Policy

From chapter 9, we know that in the long run a mobile asset has to be indifferent to where it is used, otherwise it will move.  This long-run indifference principle means that in the long run, you should be indifferent about where to live and whether to own or rent.  In particular, the price-to-rent ratios should reflect this "indifference," and be  similar across cities.  However, this is is certainly not the case.  Here are the most expensive cities:

CityPrice-to-Rent
Ratio
Home Price
(for a $1,000 Rental)
San Francisco, California50.11$601,362
Oakland, California41.05$492,611
Honolulu, Hawaii39.50$474,014
Los Angeles, California38.59$463,135
New York, New York36.83$441,987
Long Beach, California36.37$436,385
Seattle, Washington36.07$432,862
San Jose, California33.77$405,263
Washington, D.C.33.76$405,070

and the cheapest ones:

Indianapolis, Indiana13.18$158,161
El Paso, Texas12.79$153,486
Lubbock, Texas12.78$153,333
Baltimore, Maryland12.43$149,179
Milwaukee, Wisconsin12.43$149,146
Corpus Christi, Texas12.14$145,670
Pittsburgh, Pennsylvania11.14$133,622
Buffalo, New York10.66$127,862
Toledo, Ohio9.68$116,148
Memphis, Tennessee9.53$114,368
Cleveland, Ohio8.31$99,716
Detroit, Michigan5.35$64,194


NOTE:  this is not the "owner equivalent rent" which includes the opportunity cost of owning, it is a much simpler calculation than that,

median home value ÷ median annual rent = price-to-rent ratio

Leave a Reply

Your email address will not be published. Required fields are marked *