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Working Paper

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

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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.
Topics
Inflation
Affordable housing
07.13.2015ISSN 2573-7953 WP 15-11DOI 10.26509/frbc-wp-201511
Keywords location, rent stickiness, mean reversion, inflation measurement
JEL Classification Codes E3, L8, R11, R21, R31

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Verbrugge, Randal J., 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. https://doi.org/10.26509/frbc-wp-201511