Revising US Rental Price Trends and CPI Methodology (1914–2006)
This National Bureau of Economic Research working paper addresses the 'falling real rents' puzzle in United States economic history. The authors demonstrate that the Bureau of Labor Statistics' Rent of Primary Residence series, which suggested nominal rental prices grew slower than overall prices from 1914 to 2006, resulted from inconsistent shelter treatment in the Consumer Price Index. By constructing a new, methodologically consistent shelter price series using the Historical Housing Prices Project rental index and revised shelter weights, the study applies the owners’ equivalent rent concept consistently across time. The new data reveals that shelter prices increased by a factor of 28.4, significantly higher than the previously reported 10.7 increase. Consequently, average CPI growth is adjusted upward from 3.3% to 3.6% annually. This revised series eliminates the apparent long-run decline in real rents, offering a more accurate benchmark for assessing twentieth-century cost of living and real income trends in the US. The research highlights critical methodological flaws in historical inflation measurement and provides corrected data for future economic analysis.
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Revising US Rental Price Trends and CPI Methodology (1914–2006)
This National Bureau of Economic Research working paper addresses the 'falling real rents' puzzle in United States economic history. The authors demonstrate that the Bureau of Labor Statistics' Rent of Primary Residence series, which suggested nominal rental prices grew slower than overall prices from 1914 to 2006, resulted from inconsistent shelter treatment in the Consumer Price Index. By constructing a new, methodologically consistent shelter price series using the Historical Housing Prices Project rental index and revised shelter weights, the study applies the owners’ equivalent rent concept consistently across time. The new data reveals that shelter prices increased by a factor of 28.4, significantly higher than the previously reported 10.7 increase. Consequently, average CPI growth is adjusted upward from 3.3% to 3.6% annually. This revised series eliminates the apparent long-run decline in real rents, offering a more accurate benchmark for assessing twentieth-century cost of living and real income trends in the US. The research highlights critical methodological flaws in historical inflation measurement and provides corrected data for future economic analysis.
National Bureau of Economic Research Working Papers