Rents Have Been Rising, Not Falling, in the Postwar Period

42 Pages Posted: 31 Jan 2009

See all articles by Theodore M. Crone

Theodore M. Crone

Swarthmore College

Leonard I. Nakamura

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Richard Voith

Econsult Corporation; University of Pennsylvania - Wharton School, Department of Real Estate

Date Written: October 2008

Abstract

Until the end of 1977, the U.S. consumer price index for rents tended to omit rent increases when units had a change of tenants or were vacant, biasing inflation estimates downward. Beginning in 1978, the Bureau of Labor Statistics (BLS) implemented a series of methodological changes that reduced this nonresponse bias, but substantial bias remained until 1985. The authors set up a model of nonresponse bias, parameterize it, and test it using a BLS microdata set for rents. From 1940 to 1985, the official BLS CPI-W price index for tenant rents rose 3.6 percent annually; the authors argue that it should have risen 5.0 percent annually. Rents in 1940 should be only half as much as their official relative price; this has important consequences for historical measures of rent-house-price ratios and for the growth of real consumption. (Revision forthcoming in Review of Economics and Statistics.)

JEL Classification: C81, C82, E31, O47, R21, R31

Suggested Citation

Crone, Theodore M. and Nakamura, Leonard I. and Voith, Richard, Rents Have Been Rising, Not Falling, in the Postwar Period (October 2008). FRB of Philadelphia Working Paper No. 08-28, Available at SSRN: https://ssrn.com/abstract=1319427 or http://dx.doi.org/10.2139/ssrn.1319427

Theodore M. Crone (Contact Author)

Swarthmore College ( email )

500 College Ave
Swarthmore, PA 19081
United States

Leonard I. Nakamura

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3804 (Phone)
215-574-4364 (Fax)

Richard Voith

Econsult Corporation ( email )

Philadelphia, PA 19104
United States

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215 382 1894 (Phone)

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