Rents Have Been Rising, Not Falling, in the Postwar Period

October 2008

WP 08-28 – Until the end of 1977, the U.S. consumer price index for rents tended to omit rent increases when units had a change of tenants or were vacant, biasing inflation estimates downward.

Supersedes Working Paper 06-07 – The CPI for Rents: A Case of Understated Inflation

Beginning in 1978, the Bureau of Labor Statistics (BLS) implemented a series of methodological changes that reduced this nonresponse bias, but substantial bias remained until 1985. The authors set up a model of nonresponse bias, parameterize it, and test it using a BLS microdata set for rents. From 1940 to 1985, the official BLS CPI-W price index for tenant rents rose 3.6 percent annually; the authors argue that it should have risen 5.0 percent annually. Rents in 1940 should be only half as much as their official relative price; this has important consequences for historical measures of rent-house-price ratios and for the growth of real consumption. (Revision forthcoming in Review of Economics and Statistics.)

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