Location, Location, Structure Type: Rent Divergence within Neighborhoods
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.
JEL Codes: R31, R21, E30.
Keywords: rental housing, price measurement, owners’ equivalent rent.
Suggested citation: Adams, Brian, and Randal Verbrugge. 2021. “Location, Location, Structure Type: Rent Divergence within Neighborhoods.” Federal Reserve Bank of Cleveland, Working Paper No. 21-03. https://doi.org/10.26509/frbc-wp-202103.