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Explaining the Rent–OER Inflation Divergence, 1999–2007

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  • Randal Verbrugge
  • Robert Poole

Abstract

U.S. Rent inflation has often greatly exceeded Owners' Equivalent Rent (OER) Inflation. Why? Critics believe that the Bureau of Labor Statistics is making a faulty utilities adjustment to OER and that the Federal Reserve Board should focus only on Rent inflation. Both beliefs are misguided. Herein we decompose the historical Rent–OER inflation differential into its various determinants. The utilities adjustment, which is necessary, sometimes contributed, but is no smoking gun. The main culprit was an economically interesting pattern of differential rent inflation across locales within cities, one common to many cities. Surprisingly, rent control also played a role.

Suggested Citation

  • Randal Verbrugge & Robert Poole, 2010. "Explaining the Rent–OER Inflation Divergence, 1999–2007," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(4), pages 633-657, Winter.
  • Handle: RePEc:bla:reesec:v:38:y:2010:i:4:p:633-657
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    File URL: http://hdl.handle.net/10.1111/j.1540-6229.2010.00278.x
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    References listed on IDEAS

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    1. Levinson, Arik & Niemann, Scott, 2004. "Energy use by apartment tenants when landlords pay for utilities," Resource and Energy Economics, Elsevier, vol. 26(1), pages 51-75, March.
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    5. Randal Verbrugge, 2008. "The Puzzling Divergence Of Rents And User Costs, 1980-2004," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(4), pages 671-699, December.
    6. Morris A. Davis & Andreas Lehnert & Robert F. Martin, 2008. "The Rent-Price Ratio For The Aggregate Stock Of Owner-Occupied Housing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(2), pages 279-284, June.
    7. Dixie M. Blackley & James R. Follain, 1987. "Tests of Locational Equilibrium in the Standard Urban Model," Land Economics, University of Wisconsin Press, vol. 63(1), pages 46-61.
    8. Blackley, Dixie M. & Follain, James R., 1996. "In search of empirical evidence that links rent and user cost," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 409-431, June.
    9. Jim Clayton, 1998. "Further Evidence on Real Estate Market Efficiency," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 41-58.
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    Cited by:

    1. repec:bla:reesec:v:45:y:2017:i:3:p:591-627 is not listed on IDEAS
    2. Randal Verbrugge & Alan Dorfman & William Johnson & Fred Marsh III & Robert Poole & Owen Shoemaker, 2017. "Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(3), pages 591-627, July.

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