Location, Location, Structure Type: Rent Divergence within Neighborhoods

23 Pages Posted: 10 Feb 2021

See all articles by Brian Adams

Brian Adams

Bureau of Labor Statistics

Randal Verbrugge

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: February 9, 2021

Abstract

Housing rents are a large share of household budgets and make a large contribution to overall inflation. Rent inflation rates for different types of housing units sometimes diverge, even in the same neighborhoods. We estimate during 2013 to 2016 apartment rents outpaced rents for detached housing in the United States by 0.76 percentage points annually after controlling for location effects. These rent dynamics imply a segmented housing market. They also suggest rent indexes need to be based on data structurally representative of their measurement objective. In particular, indexes based on professionally managed apartment complexes mismeasure the rents for housing generally. Even indexes based on careful geographical sampling, such as the Consumer Price Index’s Owners’ Equivalent Rent component, may be biased by using an unrepresentative mix of apartments and houses.

Keywords: rental housing, price measurement, owners’ equivalent rent

JEL Classification: R31, R21, E30

Suggested Citation

Adams, Brian and Verbrugge, Randal, Location, Location, Structure Type: Rent Divergence within Neighborhoods (February 9, 2021). FRB of Cleveland Working Paper No. 21-03, Available at SSRN: https://ssrn.com/abstract=3782829 or http://dx.doi.org/10.2139/ssrn.3782829

Brian Adams

Bureau of Labor Statistics ( email )

2 Massachusetts Avenue, NE
Washington, DC 20212
United States

Randal Verbrugge (Contact Author)

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

East 6th & Superior
Cleveland, OH 44101-1387
United States

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