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Accounting for homeownership in estimating real income growth

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  • Braga, Breno
  • Lerman, Robert I.

Abstract

Have real median incomes in the U.S. stagnated or achieved modest growth? Answers often vary depending on the price index one uses. Several researchers have argued that the Consumer Price Index (CPI) overstates inflation and understates real income growth. The CPI’s approach to estimating homeowner shelter inflation is owners’ equivalent rent. In this paper, we investigate a user cost approach for estimating homeowner shelter cost inflation, addressing the expected appreciation challenge. We find that over the 1984–2016 period, using money income deflated by the official CPI understates real income growth substantially relative to the user cost approach.

Suggested Citation

  • Braga, Breno & Lerman, Robert I., 2019. "Accounting for homeownership in estimating real income growth," Economics Letters, Elsevier, vol. 174(C), pages 9-12.
    • Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:9-12
    DOI: 10.1016/j.econlet.2018.10.012
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    References listed on IDEAS

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    1. Bruce Sacerdote, 2017. "Fifty Years Of Growth In American Consumption, Income, And Wages," NBER Working Papers 23292, National Bureau of Economic Research, Inc.
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    6. Garner, Thesia I. & Verbrugge, Randal, 2009. "Reconciling user costs and rental equivalence: Evidence from the US consumer expenditure survey," Journal of Housing Economics, Elsevier, vol. 18(3), pages 172-192, September.
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    9. W. Erwin Diewert & Alice O. Nakamura, 2009. "Accounting for housing in a CPI," Working Papers 09-4, Federal Reserve Bank of Philadelphia.
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    11. Timothy M. Smeeding & Peter Saunders & John Coder & Stephen Jenkins & Johan Fritzell & Aldi J. M. Hagenaars & Richard Hauser & Michael Wolfson, 1993. "Poverty, Tnequaltty, And Famtly Living Standards Impacts Across Seven Nations: The Effect Of Noncash Subsidies For Health, Education And Housing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(3), pages 229-256, September.
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    Cited by:

    1. Brian Adams & Randal Verbrugge, 2020. "Location, Location, Structure Type: Rent Divergence within Neighborhoods," Economic Working Papers 533, Bureau of Labor Statistics.
    2. Marina Gindelsky & Jeremy G. Moulton & Scott A. Wentland, 2020. "Valuing Housing Services in the Era of Big Data: A User Cost Approach Leveraging Zillow Microdata," NBER Chapters, in: Big Data for Twenty-First-Century Economic Statistics, pages 339-370, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Consumer price index; Homeownership; Income growth;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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