Housing Depreciation and Aging Bias in the Consumer Price Index

William C. Randolph

62 citations0/0 files storedJournal of Business and Economic Statistics

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Housing Market and Economics Monetary Policy and Economic Impact Consumer Market Behavior and Pricing

Abstract

I use hedonic regression methods to estimate average rental housing physical depreciation for areas of the United States. I estimate downward quality bias of the U.S. consumer price index (CPI) caused by rental-housing physical depreciation, and I develop methods to correct the CPI for such aging bias. My physical depreciation estimates imply that recent percentage changes in the U.S. CPI shelter-cost indexes are downward biased by .3 to .4 annually. Such bias is nonnegligible because recent annual changes in the CPI shelter-cost indexes have ranged between 3.5% and 6.8% for various regions. My results also imply that rent-controlled housing has depreciated faster than other rental housing.

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References

1974Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition 1986The theory and practice of econometrics 1985Economic Theory and the Cities 1987Microeconomic Estimates of Housing Depreciation 1980Alternative Techniques for Developing Real Estate Price Indexes 1974Housing unit maintenance and the mode of tenure

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1996Mismeasurement in the Consumer Price Index: An Evaluation 1995Interarea indexes of the cost of shelter using hedonic quality adjustment techniques 1989Housing Price Indexes from the 1974–1983 SIMSA Annual Housing Surveys

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