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Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence

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  • Wesley Janson
  • Randal Verbrugge

Abstract

tatistical agencies track rental expenditures for use in the national accounts and in consumer price indexes (CPIs). As such, statistical agencies should include late payment fees and nonpayment in rent. In the US context, late payment fees are excluded from the CPI. Ostensibly, nonpayment of rent is included in the US CPI; but its treatment is deficient, and we demonstrate that small variations in nonpayment could lead to large swings in shelter inflation, and might have played a role in the 2009 measured shelter inflation collapse. They didn’t: while the national nonpayment incidence is 2-3 percent, in the 1 million plus rent observations in BLS rent microdata from 2000-2016, no nonpayment is recorded. A back-of-the-envelope calculation suggests that, assuming nonpayment undermeasurement continued after 2016, CPI shelter inflation may have been overestimated by about 1 percentage point per month (annualized) in 2020. Late fees and nonpayment are difficult to measure in real time. We offer implementation suggestions that are consistent with CPI procedures.

Suggested Citation

  • Wesley Janson & Randal Verbrugge, 2021. "Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence," Working Papers 20-22R, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwq:90678
    DOI: 10.26509/frbc-wp-202022r
    Note: Revised version of Working Paper 2020-22 which was posted in July of 2020 and taken down by the authors.
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    References listed on IDEAS

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    1. Laurence Ball & Sandeep Mazumder, 2019. "A Phillips Curve with Anchored Expectations and Short‐Term Unemployment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(1), pages 111-137, February.
    2. Brian Adams & Randal Verbrugge, 2020. "Location, Location, Structure Type: Rent Divergence within Neighborhoods," Economic Working Papers 533, Bureau of Labor Statistics.
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    5. 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.
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    More about this item

    Keywords

    shelter inflation; nonpayment; eviction; COVID-19 collapse; CPI mismeasurement;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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