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Differences in Rent Inflation by Cost of Housing

Author

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  • Jonathan McCarthy
  • Richard Peach

Abstract

We know that different people experience different inflation rates because the bundle of goods and services that they consume is different from that of the \\"typical\\" household. This phenomenon is discussed in this publication from the Bureau of Labor Statistics (BLS), and this article from the New York Fed. But did you know that there are substantial differences in inflation experience depending on the level of one's housing costs? In this post, which is based upon our updated staff report on ?The Measurement of Rent Inflation,? we present evidence that price changes for rent, which comprises a large share of consumer spending, can vary considerably across households. In particular, we show that rent inflation is consistently higher for lower-cost housing units than it is for higher-cost units. Note that since owners' equivalent rent inflation is estimated from observed changes in rent of rental units, this finding applies to homeowners as well. While we cannot be certain about why this is the case, it appears to be at least partly related to how additional units are supplied to the housing market: in higher-price segments additional units primarily come from new construction, while most of the increase in lower-price segments comes from units that previously were occupied by higher-income households.

Suggested Citation

  • Jonathan McCarthy & Richard Peach, 2015. "Differences in Rent Inflation by Cost of Housing," Liberty Street Economics 20151104, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:87077
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    More about this item

    Keywords

    differences in rent inflation by rent level; measuring rent inflation;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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