Crone, Nakamura and Voith estimate that this and other problems bring down the government’s measure of rent increases by about 1.4 percent a year for the whole period that runs from 1942 to 1985. Nakamura outlines these findings in a very readable paper published by the Philadelphia Fed. Over such a long period, 1.4 percent into a really big number. Add that in, and instead of falling 20 percent in real-dollar terms over six decades, rents rise 50 percent.
Pointer from Tyler Cowen.
The main problem mentioned in the article is that the government’s rent price measure ignored cases in which the rent changes when a new tenant occupies an apartment.
The article focuses a lot on New York City. I think most people believe intuitively that rents in New York have gone up a lot over the decades. By the same token, I think most people believe intuitively that rents in small and mid-sized cities, particularly in the Midwest, have gone down. So maybe we should not talk about “the” cost of rent as if the rental market were national.
Ok, fine — different markets, different prices. But I can’t help feeling that his baseline data is somewhat disingenuous given that the Williamsburg block that he was living on (a block from the Bedford L stop, no less) is an anomaly. Yes, many people who were priced out of Manhattan moved to Brooklyn, but when that area of Williamsburg became ‘hip’ and ‘trendy’ an enormous passel of trust fund powered young people continued to push rents up… and up… and up. Outside of a 12 block radius of his building (where I live, for instance) prices were not affected nearly so much (cuz we were too far from the coolness, natch). After the Financial Crisis, a number of those trust funds dried up and rent prices (anecdotally, at least) normalized somewhat.
My point is that it is unfair to compare the price of a vacant lot before and after an oil deposit is found directly beneath it to wider market trends on vacant lots.