The Optimal Choice between Purchase and Rent of Housing: Evidence from Russian Cities

The purpose of this paper is to determine the degree of housing overvaluations —as measured by the price-to-rent ratio— and to identify the preferable tenure for the 20 largest cities of Russia. In order to do this, in this study hedonic approach is used for estimating quality-adjusted prices and rents for identical dwellings. This paper takes advantage of the data from the all-Russia Internet advertisement website Avito on dwellings for sale and for rent, which contain information on structural characteristics of dwellings and their geographical coordinates. In addition, using GIS methods locational features of dwellings are obtained, such as the distances to the city center and important urban amenities. This information is utilized in order to assess the housing prices in the best possible way. The final step of this work includes calculations of NPV and conclusion about the optimal way of solving a housing problem in 20 cities of Russia.