Disentangling Rent Index Differences: Data, Methods, and Scope

Brian Adams, Lara Loewenstein, Hugh Montag, Randal Verbrugge

FCSM Research & Policy Conference

26 Oct 2023

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This presentation do not necessarily reflect the opinions of the Federal Reserve Bank of

Cleveland or the Federal Reserve System.

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Rent Indices Differ

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Why do these indices differ so much?

Hypotheses:

1. Different data sources

▶ Perhaps representative of different parts of the rental market

▶ Perhaps some are not representative of anything

▶ Recent change in weights for the CPI Owners’ Equivalent Rent because of different

rent movements by structure type

2. Different methods and scope

▶ Balanced panel, repeat rents on unbalanced panel, or rescaling of other measures

▶ Timing: leasing date, listing date, move-in date, reporting date

▶ Objective: rent for new leases or rent for all leases (including renewals)

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Investigating the Hypotheses

▶ Construct repeat rent indices with BLS Housing Survey data

▶ all leases

▶ only new tenants

▶ Compare indices that use same methods and scope, different data

▶ Compare indices that use same data, different methods

▶ Compare BLS repeat rent indices to outside indices

▶ timing

▶ scaling

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BLS Data

▶ ∼43,000 rental units surveyed every 6 months

▶ Units divided into 6-month panels (January-July, February-August, ...)

▶ Rental units selected from dozens of Census block groups selected from specific

metro areas

▶ Mostly continuing leases, 18% new leases

▶ Unit characteristics

▶ Tenant move-in date

▶ Structure characteristics, field notes

▶ Other variables

▶ Several rent measures: contract, “pure”, “economic”

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Repeat Rent Indices with BLS Data

▶ Regress rent change between periods s < t for the same unit on positive indicator

for month t and a negative indicator for month s

ln rentit − ln rentis = γ1Di1 + γ2Di2 + ... + γT DiT + uist

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Repeat Rent Indices with BLS Data

▶ Regress rent change between periods s < t for the same unit on positive indicator

for month t and a negative indicator for month s

ln rentit − ln rentis = γ1Di1 + γ2Di2 + ... + γT DiT + uist

▶ Construct two repeat rent indices

▶ With all observations (ATRR)

▶ Only observations with a new tenant (NTRR)

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Rent CPI

▶ Price changes calculated from p6

rentt/rentt−6

▶ Age, vacancy adjustments applied

▶ Adjustments for remodels and structural changes

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Timing Adjustment

▶ Rent change for a unit may have first occurred at any point between housing

survey observations

▶ To construct our repeat rent indices, backdate the last rent quote to move-in date

or latest n*6-month

▶ BLS is researching how to incorporate rent changes into the CPI more promptly

▶ Survey started collecting leasing duration data

▶ Corporate and admin data sources may allow more frequent observations of some

markets

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Other Repeat Rent Adjustments

▶ Vacancy: drop all observations for a housing unit after last new tenant moves in

▶ Remodels: drop where unit characteristics change, “remodel” keyword

▶ Heteroskedasticity: perform three-stage procedure to estimate GLS equation

▶ Outliers: the top and bottom 1% annualized rent changes are dropped each period

▶ Confidence intervals: bootstrap housing units within each PSU, aggregate

▶ Frequency: quarterly, so NTRR confidence intervals are narrower

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Other Rent Indices

▶ CoreLogic compiles data from Multiple Listing Services maintained by realtors

▶ Coverage varies by time and geography

▶ Mostly single detached houses, which it uses for SFRI calculations

▶ Contract rents

▶ Zillow ZORI - repeat rent index from Zillow database, MLS listings

▶ ACY Marginal Rent Index (ACY MRI) - scaled projections revenue of apartment

buildings sold in RCA data

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Same Scope, Different Data

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Same Data and Methods, Different Scope

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Same Data and Scope, Different Methods

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NTRR Compared to Other Indices

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New Tenants Leads All Leases by 3 quarters

Calculate lead/lag by corr{NTRRt, Yt+n} for positive and negative n

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NTRR Revisions

ln Pit − ln Pis = γ2Di2 + ... + γT DiT + uist

▶ Each observation pair represents a complete tenure for a tenant

▶ NTRR index will be continually revised as tenants move out

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Extra Noise in Last Quarters

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Conclusion

▶ New tenant rent and average rent are different measurement objectives.

▶ Most of the differences between CoreLogic SFRI and BLS CPI Rent are from

scope, not data.

▶ Our new tenant index is more of a leading indicator, but is more volatile and

subject to revisions.

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