A study by the Federal Reserve Bank of New York, The Measurement of Rent Inflation, finds that rent inflation is consistently greater for low cost rental units than for higher cost units. Lower income households, therefore, face higher inflation in housing costs than middle- and upper-income households.
The Federal Reserve Bank estimated rent inflation from 1989 to 2013 using data from the national American Housing Survey (AHS). They found that for every two year period, rent inflation was highest for the lowest cost rental units and lowest for the most expensive units. The table below provides the rate of inflation for two-year time periods for the lowest priced 20% of rental units and the highest priced 20% of rental units.
Time Period | Lowest Cost Rent Inflation (lowest quintile) | Highest Cost Rent Inflation (highest quintile) |
1991-93 | 8.8% | -1.0% |
1993-95 | 13.4% | 0.6% |
1995-97 | 15.9% | -1.9% |
1997-99 | 18.9% | 4.2% |
1999-2001 | 12.3% | 0.8% |
2001-03 | 11.0% | -6.4% |
2003-05 | 15.4% | -1.2% |
2005-07 | 13.4% | -4.0% |
2007-09 | 16.8% | -3.4% |
2009-11 | 13.6% | -2.7% |
2011-13 | 15.9% | -0.4% |
Source: Source: McCarthy, J. and Peach, R. (2015). Differences in Rent Inflation by Cost of Housing. New York, NY: Federal Reserve Bank of New York.
The authors explain that newly constructed units are more likely to be found in the higher rent segments of the housing market, dampening inflationary pressures in those segments during a tight housing market. New construction accounts for smaller proportions of the rental stock as one moves down the rent ladder, and therefore changes in supply at lower levels of the rent ladder rely on units filtering down from higher positions on the rent ladder.
The Measurement of Rent Inflation is available at http://nyfed.org/20AGPvU.
A brief summary drawn from the report is available at http://nyfed.org/1GPfjUX.