Recovering the Bridge between User Cost Framework and No Arbitrage Conditions in Housing Market

Recovering the Bridge between User Cost Framework and No Arbitrage Conditions in Housing Market | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Recovering the Bridge between User Cost Framework and No Arbitrage Conditions in Housing Market Dongho Kim, KiHoon Hong This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7503283/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This study examines the rent to price RP ratio as a fundamental valuation metric, leveraging millions of apartment sales and rental contract records from Seoul, South Korea 2015 to 2024. By identifying 51,201 pairs of precisely matched sale and newly signed rental contracts, occurring in the same apartment and month, we construct a refined RP ratio addressing measurement errors. Our analysis reveals that older properties and those with lower floor area ratios exhibit lower RP ratios, reflecting redevelopment expectations. Additionally, this matched sample, when constructed as an index to remove composition effects, significantly predicts future rent growth but not price appreciation. This pattern is consistent with informational efficiency where housing prices incorporate forward looking information while rents adjust more gradually. When measurement error is corrected, the market clearing condition implied by the user cost framework is right and demonstrates its consistency with informational efficiency in real estate markets. JEL Classification: G14, R31 Residential Market Market Efficiency User Cost Rent-to-Price Ratio Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-7503283","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":511394228,"identity":"7ddad93c-7f71-4e5d-a6ad-55afb5f695b0","order_by":0,"name":"Dongho Kim","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAAy0lEQVRIiWNgGAWjYHACxgcJPGxyINaBB8So52FgYDb4IMNnDNaSQKQWNskZNnKJDSAeUVrsJXKMjXlyzNLnhx1+CLTFTk63gZAtEjmGj3nOpOVuvJ1mANSSbGx2gLAWY2PenmO5G2cngLQcSNxGhBYzad5//9MNZ6d/IF6L5AwetgR56RxibTnzrNjgAw+b4QbpnIIDCQZE+IW9PXkjKCrl5Wenb/7wocJOjqAWBoEECG0AVmlASDkI8EMNlW8gRvUoGAWjYBSMSAAAssBC1jq4PAcAAAAASUVORK5CYII=","orcid":"","institution":"Deakin University","correspondingAuthor":true,"prefix":"","firstName":"Dongho","middleName":"","lastName":"Kim","suffix":""},{"id":511394229,"identity":"22f9e7a4-53df-4d00-92d8-db0f146f5c84","order_by":1,"name":"KiHoon Hong","email":"","orcid":"","institution":"Hongik University","correspondingAuthor":false,"prefix":"","firstName":"KiHoon","middleName":"","lastName":"Hong","suffix":""}],"badges":[],"createdAt":"2025-09-01 01:23:17","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-7503283/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-7503283/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":101693654,"identity":"9a272995-5cf4-4466-a241-e9e3cf6553b5","added_by":"auto","created_at":"2026-02-02 16:27:37","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":520970,"visible":true,"origin":"","legend":"","description":"","filename":"Manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-7503283/v1_covered_79edde56-af2e-49e2-827a-965e6e465bd1.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Recovering the Bridge between User Cost Framework and No Arbitrage Conditions in Housing Market","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Residential Market, Market Efficiency, User Cost, Rent-to-Price Ratio ","lastPublishedDoi":"10.21203/rs.3.rs-7503283/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7503283/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis study examines the rent to price RP ratio as a fundamental valuation metric, leveraging millions of apartment sales and rental contract records from Seoul, South Korea 2015 to 2024. 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