Why is the Rent So Darn High?

Fisher College of Business Working Paper No. 2018-03-017

Charles A. Dice Center Working Paper No. 2018-17

47 Pages Posted: 23 Aug 2018 Last revised: 25 Apr 2019

See all articles by Greg Howard

Greg Howard

University of Illinois at Urbana-Champaign

Carl Liebersohn

Ohio State University (OSU) - Fisher College of Business

Date Written: April 5, 2019

Abstract

Because of migration. In a spatial equilibrium framework, we show that three-quarters of the CPI rent increase from 2000 to 2018 is due to increased demand to live in ex ante housing-supply-inelastic cities. First, we decompose rent and population changes into local housing market and migration shocks through the lens of a spatial equilibrium model, and we show that the importance of each shock depends heavily on the migration elasticity to rents. We estimate that elasticity by looking for heterogeneous impacts of demand shocks in cities with different housing supply elasticities, and find that migration is highly elastic to rent changes in the long-run. Finally, we examine what drives such changes across space, and attribute a significant portion of the rent increase to differential changes in labor markets.

Keywords: labor mobility, housing affordability, housing supply elasticity

JEL Classification: R31, R23, E31

Suggested Citation

Howard, Greg and Liebersohn, Carl, Why is the Rent So Darn High? (April 5, 2019). Charles A. Dice Center Working Paper No. 2018-17. Available at SSRN: https://ssrn.com/abstract=3236189 or http://dx.doi.org/10.2139/ssrn.3236189

Greg Howard

University of Illinois at Urbana-Champaign ( email )

Carl Liebersohn (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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