Hedonic Estimates of the Cost of Housing Services: Rental and Owner-Occupied Units

FRB of Philadelphia Working Paper No. 04-22

35 Pages Posted: 29 Oct 2004

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 2004

Abstract

Recent papers have questioned the accuracy of the Bureau of Labor Statistics' methodology for measuring rent increases and changes in implicit rents for owner-occupied housing. We compare the BLS estimates of increases in rents and owner-occupied housing costs to regression-based estimates using data from the American Housing Survey. A hedonic approach that explicitly calculates capitalization rates produces a methodologically consistent measure of the rental cost of owner-occupied housing. We estimate that between 1985 and 1999 the Consumer Price Index (CPI-U) may have understated the cumulative increase in rents. But any understatement was slight. On the other hand, we estimate that the CPI overstated the increase in the cost of housing services for homeowners by 0.4 percent on an annualized basis from 1985 to 1999.

Keywords: Index numbers and aggregation, price level, housing demand

JEL Classification: C43, E31, R21

Suggested Citation

Crone, Theodore M. and Nakamura, Leonard I. and Voith, Richard, Hedonic Estimates of the Cost of Housing Services: Rental and Owner-Occupied Units (October 2004). FRB of Philadelphia Working Paper No. 04-22, Available at SSRN: https://ssrn.com/abstract=610942 or http://dx.doi.org/10.2139/ssrn.610942

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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