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Location, Location, Structure Type: Rent Divergence within Neighborhoods

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  • Brian Adams
  • Randal J. Verbrugge

Abstract

Housing rents are a large share of household budgets and make a large contribution to overall inflation. Rent inflation rates 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 0.76 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 Owners’ Equivalent Rent component, may be biased by using an unrepresentative mix of apartments and houses.

Suggested Citation

  • Brian Adams & Randal J. Verbrugge, 2021. "Location, Location, Structure Type: Rent Divergence within Neighborhoods," Working Papers 21-03, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:89845
    DOI: 10.26509/frbc-wp-202103
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    Cited by:

    1. Adams, Brian & Verbrugge, Randal, 2025. "Location, location, structure type: Rent divergence within neighborhoods," Journal of Housing Economics, Elsevier, vol. 69(C).
    2. Molloy, Raven, 2024. "JUE insight: Differences in rent growth by income from 1985 to 2021 and implications for inflation," Journal of Urban Economics, Elsevier, vol. 142(C).
    3. 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.
    4. Brian Adams & Lara Loewenstein & Hugh Montag & Randal Verbrugge, 2024. "Disentangling Rent Index Differences: Data, Methods, and Scope," American Economic Review: Insights, American Economic Association, vol. 6(2), pages 230-245, June.

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    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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