Measuring American Rents: A Revisionist History

July 2001

WP 01-08 – Until the end of 1977, the method used to measure changes in rent of primary residence in the U.S. consumer price index (CPI) tended to omit price changes when units changed tenants or were temporarily vacant. Since such units typically had more rapid increases in rents than average units, omitting them biased inflation estimates downward.

Beginning in 1978, the Bureau of Labor Statistics (BLS) implemented a series of methodological changes that reduced this bias. The authors use data from the American Housing Survey to check the success of the corrections. They compare estimates of the historical series adjusted for the BLS changes in methodology with a new hedonic estimate of changes in rental rates. The authors conclude that from 1940 to 1977 the CPI for rent would have been about 60 percent higher if current BLS practices had been used — between 1.3 and 3.5 percentage points. Even after the corrections have been made, the authors' hedonic estimates suggest that the current CPI methodology may still understate the rental inflation rate by 0.5 to 1 percentage point.

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