Accounting for Homeownership in Estimating Real Income Growth

12 Pages Posted: 1 Nov 2018

See all articles by Breno Braga

Breno Braga

The Urban Institute; IZA

Robert I. Lerman

The Urban Institute; American University; IZA Institute of Labor Economics

Date Written: October 10, 2018

Abstract

Have real median incomes in the U.S. stagnated or achieved modest growth? Answers often vary depending on the price index one uses. Several researchers have argued that the Consumer Price Index (CPI) overstates inflation and understates real income growth. The CPI's approach to estimating homeowner shelter inflation is owners' equivalent rent. In this paper, we investigate a user cost approach for estimating homeowner shelter cost inflation, addressing the expected appreciation challenge. We find that over the 1984-2016 period, using money income deflated by the official CPI understates real income growth substantially relative to the user cost approach.

Keywords: Consumer Price Index, Homeownership, Income Growth

JEL Classification: D1, E3, I3

Suggested Citation

Braga, Breno and Lerman, Robert I., Accounting for Homeownership in Estimating Real Income Growth (October 10, 2018). Available at SSRN: https://ssrn.com/abstract=3264112 or http://dx.doi.org/10.2139/ssrn.3264112

Breno Braga (Contact Author)

The Urban Institute ( email )

2100 M Street, NW
Washington, DC 20037
United States

IZA ( email )

Robert I. Lerman

The Urban Institute ( email )

2100 M Street, NW
Washington, DC 20037
United States

American University

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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