In Search of Empirical Evidence that Links Rent and User Cost / Dixie M. Blackley, James R. Follain.

Format:

Book

Author/Creator:

Blackley, Dixie M.

Contributor:

National Bureau of Economic Research.

Follain, James R.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5177.

NBER working paper series no. w5177

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Summary:

Most models of the rental housing market assume a close linkage between the level of residential rents and the after-tax user cost of rental housing capital. However, little empirical evidence exists to establish the strength of this linkage or the speed with which rents adjust to changes in user cost or tax policy. This paper develops and estimates an econometric model of the rental housing market in order to shed light on both of these issues. United States annual data for 1964 through 1993 are used to generate two-stage least squares estimates of a four equation structural model. Although the results are generally consistent with expectations and reveal several interesting relationships among the system variables, the estimates fail to identify a strong relationship between rent and user cost. About half of an increase in user cost is ultimately passed along as higher rent. The adjustment process also takes a long time, with only about a third of the long-run effect realized within ten years of a user cost shock. The fundamental reason for this result is that our estimate of the user cost series, based upon widely accepted procedures, is much more volatile than the residential rent series.

Notes:

Print version record

July 1995.