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Location, Location, Structure Type: Rent Divergence within Neighborhoods

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  • Brian Adams
  • Randal Verbrugge

Abstract

Housing rents are large share of household budgets and make a large contribution to overall inflation. Rent inflation for different types of housing units sometimes diverge, even in the same neighborhoods. We estimate during 2013 to 2016 apartment rents outpaced rents for detached housing in the United States by 0.75 percentage points annually after controlling for location effects. These rent dynamics imply a segmented housing market. They also suggest rent indexes need to be based on data structurally representative of their measurement objective. In particular, indexes based on professionally-managed apartment complexes mismeasure the rents for housing generally. Even indexes based on careful geographical sampling, such as the Consumer Price Index’s Owner Equivalent Rent component, may be biased by using an unrepresentative mix of apartments and houses.

Suggested Citation

  • Brian Adams & Randal Verbrugge, 2020. "Location, Location, Structure Type: Rent Divergence within Neighborhoods," Economic Working Papers 533, Bureau of Labor Statistics.
    • Handle: RePEc:bls:wpaper:533
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    References listed on IDEAS

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    1. Jonathan Halket & Lars Nesheim & Florian Oswald, 2020. "The Housing Stock, Housing Prices, And User Costs: The Roles Of Location, Structure, And Unobserved Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1777-1814, November.
    2. Randolph, William C, 1988. "Housing Depreciation and Aging Bias in the Consumer Price Index," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 359-371, July.
    3. Randal Verbrugge, 2012. "Do the Consumer Price Index's Utilities Adjustments for Owners’ Equivalent Rent Distort Inflation Measurement?," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(1), pages 143-148.
    4. Bettina H. Aten, 2018. "Valuing Owner-Occupied Housing: an empirical exercise using the American Community Survey (ACS) Housing files," BEA Working Papers 0149, Bureau of Economic Analysis.
    5. Brent W. Ambrose & N. Edward Coulson & Jiro Yoshida, 2015. "The Repeat Rent Index," The Review of Economics and Statistics, MIT Press, vol. 97(5), pages 939-950, December.
    6. 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.
    7. Joshua Gallin & Randal Verbrugge, 2007. "Improving the CPI’s Age-Bias Adjustment: Leverage, Disaggregation and Model Averaging," Working Papers 411, U.S. Bureau of Labor Statistics.
    8. Braga, Breno & Lerman, Robert I., 2019. "Accounting for homeownership in estimating real income growth," Economics Letters, Elsevier, vol. 174(C), pages 9-12.
    9. Heston, Alan & Nakamura, Alice O., 2009. "Questions about the equivalence of market rents and user costs for owner occupied housing," Journal of Housing Economics, Elsevier, vol. 18(3), pages 273-279, September.
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    Cited by:

    1. Wesley Janson & Randal J. Verbrugge, 2021. "Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence," Working Papers 20-22R2, Federal Reserve Bank of Cleveland, revised 06 Nov 2023.
    2. Brian Adams & Lara Loewenstein & Hugh Montag & Randal J. Verbrugge, 2022. "Disentangling rent index differences: data, methods, and scope," Working Papers 22-38R, Federal Reserve Bank of Cleveland, revised 28 Sep 2023.

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    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • 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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