Why is the Rent So Darn High?
71 Pages Posted: 23 Aug 2018 Last revised: 4 Aug 2020
Date Written: July 31, 2020
Because of migration. In a spatial equilibrium framework, we show that threequarters of the CPI rent increase in the United States from 2000 to 2018 is due to increased demand to live in ex ante housing-supply-inelastic cities. Moving one person to a less elastic city raises the average rent because the positive effect on rents in the inelastic city outweighs the negative effect in the elastic one. In these years, the quantitative importance of this migration channel is greater if people are mobile in response to rent changes. Empirically, we show that people have high long-run mobility
by estimating that income changes have similar effects on rents across cities regardless of housing supply elasticity. Supporting this migration channel, the cross-sectional pattern of migration demand implied by our model matches patterns of labor-market and amenity changes.
Keywords: labor mobility, housing affordability, regional inequality
JEL Classification: R31, R23, E31
Suggested Citation: Suggested Citation