Rental Prices and the Cost of Living in the United States, 1914–2006

The Rent of Primary Residence (RoPR) series constructed by the Bureau of Labor Statistics implies that nominal rental prices increased by just 2.6 percent per year from 1914 to 2006 while overall prices grew by 3.3 percent. We show that this “falling real rents” puzzle can be explained by the evolving treatment of shelter in the Consumer Price Index (CPI). In this paper, we construct a new, methodologically consistent shelter price series using the Historical Housing Prices (HHP) Project rental index. We also construct a revised set of shelter weights going back to 1914 and combine it with the price series to create an alternate CPI that applies the owners’ equivalent rent concept of shelter consistently across time. The HHP shelter price series increases by a factor of 28.4 (compared with the 10.7 increase in RoPR) and lifts average CPI growth from 3.3 percent to 3.6 percent per year. The revised series eliminates the long-run decline in real rents in the CPI and provides a new benchmark for assessing trends in the cost of living and real income in the United States over the 20th century.