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Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects

Author

Listed:
  • Randal Verbrugge
  • Alan Dorfman
  • William Johnson
  • Fred Marsh III
  • Robert Poole
  • Owen Shoemaker

Abstract

We study 2001-2004 and 2004-2007 rent growth of 18,000 rental units, ending our study prior to the Great Recession. Which variables correlate with rent growth: Location? Age? Rent level? Occupancy duration? Structure type? The answers deepen understanding of the rental market, help statistical agencies make decisions about sample stratification and substitution, and expose coverage problems. We document significant rent stickiness. Initial relative rent level is the best predictor, though mainly due to mean reversion. \"Location\" comes in second, though often not statistically significantly: the relative value of location is persistent. Age and occupancy duration are also notable. Our findings are reassuring to statistical agencies.
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Suggested Citation

  • 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.
    • Handle: RePEc:bla:reesec:v:45:y:2017:i:3:p:591-627
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    File URL: http://hdl.handle.net/10.1111/reec.2017.45.issue-3
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    Citations

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    Cited by:

    1. Zoutieding, Tieding, 2018. "生育率波动与土地流失对城郊家庭养老的侵蚀性影响 [The Erosion Effect of the Fertility Fluctuation and Soil Erosion on Elderly Supporting of Suburban Families]," MPRA Paper 101626, University Library of Munich, Germany, revised 06 Dec 2018.
    2. Gallin, Joshua & Verbrugge, Randal J., 2019. "A theory of sticky rents: Search and bargaining with incomplete information," Journal of Economic Theory, Elsevier, vol. 183(C), pages 478-519.
    3. Jessica Rutherford & Ronald Rutherford & Abdullah Yavas & Lei Wedge & Marcus T. Allen, 2025. "Micro Evidence Relating to House Rents, Prices and Investor Size from a Matched Dataset," The Journal of Real Estate Finance and Economics, Springer, vol. 70(1), pages 38-64, January.
    4. Alexandros Kontonikas & Emmanouil Pyrgiotakis, 2025. "A comprehensive analysis of transactions in the Greek residential property market," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 204, Hellenic Observatory, LSE.
    5. Kontonikas, Alexandros & Pyrgiotakis, Emmanouil, 2025. "A comprehensive analysis of transactions in the Greek residential property market," LSE Research Online Documents on Economics 127179, London School of Economics and Political Science, LSE Library.
    6. Adams, Brian & Verbrugge, Randal, 2025. "Location, location, structure type: Rent divergence within neighborhoods," Journal of Housing Economics, Elsevier, vol. 69(C).
    7. Alex Ilek & Nimrod Cohen & Yaakov Chen-Zion, 2024. "Assessing the Impact of Monetary and Macroprudential Policies on Israel's Housing Market: A DSGE Model Approach," Bank of Israel Working Papers 2024.14, Bank of Israel.
    8. Brent W. Ambrose & N. Edward Coulson & Jiro Yoshida, 2023. "Housing Rents and Inflation Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(4), pages 975-992, June.
    9. Kyoochul Kim, 2020. "Payment Performance and Residency Discounts in the Rental Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(4), pages 1168-1197, December.
    10. Lopez, Luis A. & Yoshida, Jiro, 2022. "Estimating housing rent depreciation for inflation adjustments," Regional Science and Urban Economics, Elsevier, vol. 95(C).
    11. Brent W. Ambrose & Moussa Diop, 2021. "Information Asymmetry, Regulations and Equilibrium Outcomes: Theory and Evidence from the Housing Rental Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S1), pages 74-110, March.
    12. Safiye Özge Subaşı & Tüzin Baycan, 2022. "Impacts of the COVID-19 pandemic on private rental housing prices in Turkey," Asia-Pacific Journal of Regional Science, Springer, vol. 6(3), pages 1177-1193, October.
    13. Suzuki, Masatomo & Asami, Yasushi & Shimizu, Chihiro, 2021. "Housing rent rigidity under downward pressure: Unit-level longitudinal evidence from Tokyo," Journal of Housing Economics, Elsevier, vol. 52(C).
    14. Mark Merante & Keren Mertens Horn, 2016. "Is Home Sharing Driving up Rents? Evidence from Airbnb in Boston," Working Papers 2016_03, University of Massachusetts Boston, Economics Department.

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • L8 - Industrial Organization - - Industry Studies: Services
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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