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Ok, if you were the government and I asked you to measure rent increases - what would you do? Would you look at the cost of renting on average in a city and com

Ok, if you were the government and I asked you to measure rent increases - what would you do? Would you look at the cost of renting on average in a city and compare them to last years? Seems like the most obvious way... Well, that is not how the government does it now. It currently uses a metric called "owner's equivalent rent". Where instead they call up people who own there houses and ask them how much they would rent it for. It is essentially a survey instead of hard data. This has the effect of hugely underestimating the value of housing - and thats just housing! Lets talk about measuring food prices, well according to the US government you can have "substitutions". If you think measuring the price of steak is as easy as comparing the number between the years you'd be wrong again, because what they currently do is say "well people are really buying ground beef instead of steak so well use those prices instead". What's next substituting in dog food? Thats not even to mention "hedonic adjustments"... When the government relies on a statistic for policy it stops becoming a reliable statistic because the incentive is just too high to not manipulate the numbers

nradov 4y ago
The BLS uses both actual rents and owner's equivalent rents as components of the overall Consumer Price Index inflation calculation. https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
dragonwriter 4y ago
> Ok, if you were the government and I asked you to measure rent increases - what would you do? Would you look at the cost of renting on average in a city and compare them to last years? Seems like the most obvious way... Well, that is not how the government does it now. Except, in fact, it actually is how they do the rent portion of CPI. (Well, its not city rent averages, they do same-unit rent changes and average those.) > It currently uses a metric called "owner's equivalent rent". No, OER is used for...OER. Rent is used for rent. They are two separate subcomponents of the housing component of CPI. More complete description: https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
- Sad90sNerd 4y ago
  Even if that is true (which I am doubtful of), what is the merit of OER at all? Why use it if its A) not really what people are paying B) relying on people not in the market to guess what the going rate is and C) consistently underestimates actual rent. I see no purpose for it besides the government liking the C) part... Remember folks, inflation is "temporary" or, i mean, "transitory", or I mean, yes we have inflation, but its the COVID supply chain, OH oh sorry its Putin's fault. Yes lets stick with that...
  - dragonwriter 4y ago
    > Even if that is true (which I am doubtful of), what is the merit of OER at all? The merit of OER is that is a measure of the cost of using owned housing as housing instead of renting it out. > Why use it if its A) not really what people are paying It is a measure of what people are paying, as an opportunity cost. > B) relying on people not in the market to guess what the going rate is Potentially a legitimate concern. > C) consistently underestimates actual rent. Its not trying to measure actual rent and is not consistently below actual rent (which, again, is tracked separately.)
    - Sad90sNerd 4y ago
      > The merit of OER is that is a measure of the cost of using owned housing as housing instead of renting it out. I don't follow - can you help me understand? To me there are two metrics that matter: the price of property, and the price to rent property. Hypothetical: If 50% of the houses in the US were bought by older folks in the 1970 - 1990 (when housing prices were more propositional to income) and they generally don't plan to sell until 2030 - what does it matter what they would rent at today? I just don't understand the logic here, and to the fact that they are included in the CPI at all means that the CPI is necessarily skewed when it comes to housing imho

nradov 4y ago

The BLS uses both actual rents and owner's equivalent rents as components of the overall Consumer Price Index inflation calculation. https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

dragonwriter 4y ago

> Ok, if you were the government and I asked you to measure rent increases - what would you do? Would you look at the cost of renting on average in a city and compare them to last years? Seems like the most obvious way... Well, that is not how the government does it now. Except, in fact, it actually is how they do the rent portion of CPI. (Well, its not city rent averages, they do same-unit rent changes and average those.) > It currently uses a metric called "owner's equivalent rent". No, OER is used for...OER. Rent is used for rent. They are two separate subcomponents of the housing component of CPI. More complete description: https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

Sad90sNerd 4y ago
Even if that is true (which I am doubtful of), what is the merit of OER at all? Why use it if its A) not really what people are paying B) relying on people not in the market to guess what the going rate is and C) consistently underestimates actual rent. I see no purpose for it besides the government liking the C) part... Remember folks, inflation is "temporary" or, i mean, "transitory", or I mean, yes we have inflation, but its the COVID supply chain, OH oh sorry its Putin's fault. Yes lets stick with that...
- dragonwriter 4y ago
  > Even if that is true (which I am doubtful of), what is the merit of OER at all? The merit of OER is that is a measure of the cost of using owned housing as housing instead of renting it out. > Why use it if its A) not really what people are paying It is a measure of what people are paying, as an opportunity cost. > B) relying on people not in the market to guess what the going rate is Potentially a legitimate concern. > C) consistently underestimates actual rent. Its not trying to measure actual rent and is not consistently below actual rent (which, again, is tracked separately.)
  - Sad90sNerd 4y ago
    > The merit of OER is that is a measure of the cost of using owned housing as housing instead of renting it out. I don't follow - can you help me understand? To me there are two metrics that matter: the price of property, and the price to rent property. Hypothetical: If 50% of the houses in the US were bought by older folks in the 1970 - 1990 (when housing prices were more propositional to income) and they generally don't plan to sell until 2030 - what does it matter what they would rent at today? I just don't understand the logic here, and to the fact that they are included in the CPI at all means that the CPI is necessarily skewed when it comes to housing imho