Why is the rent so darn high? The role of growing demand to live in housing-supply-inelastic cities

Greg Howard and Jack Liebersohn

Journal of Urban Economics, 2021, vol. 124, issue C

Abstract: Real rents measured in the United States CPI increased 17.4 log-points from 2000 to 2018. We present a spatial equilibrium framework to decompose the increase into several channels, including demand to live in housing-supply-inelastic cities. We find location demand contributed significantly: using parameterizations from the literature and a new rent index, we find it is responsible for between 17 and 73 percent of the overall rent increase, and an even larger share in cities where CPI is measured. The wide range is primarily due to a lack of consensus over the population elasticity to rents, so we estimate it by comparing the effects of demand shocks across cities of differing housing supply elasticities. We find that demand changes have similar effects across cities, suggesting a high population elasticity. Therefore, our preferred estimate is that location demand accounts for more than half of the increase. We discuss implications for housing supply policy.

Keywords: Labor mobility; Housing affordability; Regional inequality (search for similar items in EconPapers)
JEL-codes: E31 R23 R31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0094119021000516
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Geography Channel of House Price Appreciation (2018)
Working Paper: The Geography Channel of House Price Appreciation: Did the Decline in Manufacturing Partially Cause the Housing Boom? (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:124:y:2021:i:c:s0094119021000516

DOI: 10.1016/j.jue.2021.103369

Access Statistics for this article

Journal of Urban Economics is currently edited by S.S. Rosenthal and W.C. Strange

More articles in Journal of Urban Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().