Explaining Variations Across Standard Metropolitan Statistical Areas (SMSAs) in Rental Housing Inflation Rates

摘要

This paper presents a model that explains variations in the average rate of inflation for rental housing services across metropolitan areas during the period 1974 to 1979. A reduced form equation first expresses the unit price of rental housing services as a function of the following exogenous demand and supply factors: household incomes, the number of households, preferences for rental housing, costs of producing rental housing services, capital costs, construction costs, and operating expenses. A variable to examine the impact of rent control was included. Data for the model were drawn from the 1974 to 1979 longitudinal national Annual Housing Survey, the Bureau of the Census, the Bureau of Labor Statistic, and Boeckh's Building Cost Index for residential dwellings. To examine the percentage change in the price of rental housing services as a function of changes in exogenous demand and supply factors, two equations are estimated: one explaining variations in gross price inflation and one for shelter price inflation. Gross rent is defined as contract rent plus utilities paid by the tenant, while shelter rent excludes expenditures on utilities. The relative average annual price of both shelter and gross rental housing services declined over the study period. This model explains 50 percent of the variation in shelter inflation and 34 percent of the variation in gross inflation across 51 metropolitan areas. Changes in renter household income and construction costs have the greatest influence on the price of rental housing services. However, regional variations were also found that were not fully explained by the supply and demand variables. Footnotes, tables, and nine references are included.