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Explaining the Rent–OER Inflation Divergence, 1999–2007

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  • Randal Verbrugge
  • Robert Poole

Abstract

U.S. Rent inflation has often greatly exceeded Owners' Equivalent Rent (OER) Inflation. Why? Critics believe that the Bureau of Labor Statistics is making a faulty utilities adjustment to OER and that the Federal Reserve Board should focus only on Rent inflation. Both beliefs are misguided. Herein we decompose the historical Rent–OER inflation differential into its various determinants. The utilities adjustment, which is necessary, sometimes contributed, but is no smoking gun. The main culprit was an economically interesting pattern of differential rent inflation across locales within cities, one common to many cities. Surprisingly, rent control also played a role.

Suggested Citation

  • Randal Verbrugge & Robert Poole, 2010. "Explaining the Rent–OER Inflation Divergence, 1999–2007," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(4), pages 633-657, Winter.
    • Handle: RePEc:bla:reesec:v:38:y:2010:i:4:p:633-657
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    File URL: http://hdl.handle.net/10.1111/j.1540-6229.2010.00278.x
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    References listed on IDEAS

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    Cited by:

    1. Ofer Raz-Dror, 2019. "The Changes In Rent In Israel During The Years Of The Housing Crisis 2008–2015," Israel Economic Review, Bank of Israel, vol. 17(1), pages 73-116.
    2. Ambrose, Brent W. & Coulson, N. Edward & Yoshida, Jiro, 2017. "Inflation Rates Are Very Different When Housing Rents Are Accurately Measured," HIT-REFINED Working Paper Series 71, Institute of Economic Research, Hitotsubashi University.
    3. Randal Verbrugge & Alan Dorfman & William Johnson & Fred Marsh III & Robert Poole & Owen Shoemaker, 2017. "Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(3), pages 591-627, July.
    4. Ge Bao & Guoliang Feng, 2018. "Testing the Dividend Discount Model in Housing Markets: the Role of Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 57(4), pages 677-701, November.
    5. Shu-hen Chiang, 2016. "Rising residential rents in Chinese mega cities: The role of monetary policy," Urban Studies, Urban Studies Journal Limited, vol. 53(16), pages 3493-3509, December.

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