Gimme Shelter! Rents Have Risen, Not Fallen, Since World War II

Q2 2007

Business Review — Two recent studies have concluded that for roughly four decades the measure of inflation for rents in the U.S. consumer price index was substantially underestimated.

Why should this mismeasurement be of concern? In this article, Len Nakamura explains that rents are important in measuring the price of housing services for homeowners as well as renters. They are also the main standard against which market participants and others weigh the reasonableness of house prices. In addition, such mismeasurement affected the estimated rate of overall inflation faced by U.S. households during this historical episode.

This article appeared in the Second Quarter 2007 edition of Business Review.

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