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Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects

We study 2001-2004 and 2004-2007 rent growth of 18,000 rental units, ending our study prior to the Great Recession. Which variables correlate with rent growth: Location? Age? Rent level? Occupancy duration? Structure type? The answers deepen understanding of the rental market, help statistical agencies make decisions about sample stratification and substitution, and expose coverage problems. We document significant rent stickiness. Initial relative rent level is the best predictor, though mainly due to mean reversion. “Location” comes in second, though often not statistically significantly: the relative value of location is persistent. Age and occupancy duration are also notable. Our findings are reassuring to statistical agencies.

Keywords: location, rent stickiness, mean reversion, inflation measurement.

JEL Classification: E3, L8, R11, R21, R31.

Suggested citation: Verbrugge, Randal, Alan Dorfman, William Johnson, Fred Marsh III, Robert Poole, and Owen Shoemaker, 2015. “Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects,” Federal Reserve Bank of Cleveland, Working Paper no. 15-11.

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