July 2021
Hyung Joon Chung (George Washington University)
Nathaniel Harris (George Washington University)
Abstract: Intercity housing price indexes that rely on median house price or pooled hedonic regressions adjust imperfectly for differences in housing characteristics. In addition, intercity house price indexes that rely on asset value are a biased measure of differences in the rental price of housing, because capitalization rates vary dramatically across cities. To mitigate these shortcomings, we create Fisher Ideal intercity housing price indexes for both rental and asset prices using a two-way Oaxaca-Blinder decomposition. Our method improves upon current house price indexes by using rental rather than asset prices, controlling for location and housing characteristics, and allowing implicit prices to vary across locations.
JEL Codes: C1, R1, R3
Key Words: intercity house price indices, blinder-oaxaca decomposition, Fisher Ideal index, interarea cost of living differences
