A Short Note on Rental Income

For Once, I’ll be Brief

I’ve been thinking about rent recently. Sadly, BEA’s core downloadable tables don’t break out rental income by metro area, which is a major loss. They do provide rent, interest, and dividend income, but that’s pretty noisy.

It’s been demonstrated that much of rising inequality in the US is due to rising rental income. This is an interesting fact. But then I got curious about it, so I downloaded the BEA data.

Source.

Woah. Income from rent grew like gangbusters after 1990! That’s insane!

Of course, this is partly just inflation., but even in real terms, rental income rises dramatically after 1990. Perhaps most curiously, real rental income fell rather steeply from the early 1970s to the 1980s.

However, it’s also possible that some of this growth is just population. Naturally, as there are more people, more will live in rental units, so maybe rental incomes rise with population.

Source.

If anything, population adjusting makes the 1980s slump in rental income look even more extreme, while the recent trajectory is little-changed.

But maybe these trends correlate with wider economic growth, so we’re really just seeing macroeconomic trends.

Source.

Noooooope. If anything, adjusting rental income for wider economic trends makes the 1980s look even weirder. Rental income was a freakishly low share of national personal income in the 1980s, after a long decline from the 1960s. Then in the 1990s, rental income began to rise.

I don’t know what explains all these trends. But here are some questions that maybe someone else can answer:

1. Regarding zoning restrictions today decried as boosting rents; when did these restrictions allegedly begin to bite? Where should we place tightened land use rules on this historic chart?
2. Rental income is more than just pure rents. It also includes patents and natural resource royalties and imputed rent from owner-occupied housing. How have these subcomponents changed? Is the rise in rents actually due to rising rents, or is it due to changes in imputed rents, or patents, or natural resource royalties? How closely related are these sub-series, across different times and places?
3. If the prime driver of the observed series is actual rents, then why did total rents fall during the recession when observed rental rates did not fall as much, and the total tenant population rose dramatically due to people moving out of owner-occupied housing? Did the shift from owner-implied to actual tenancy cause a problem in the series as implied-rent had a mismatch with rents received after foreclosure on a previously owned home?
4. If in fact rents did fall during the recession, then does that imply that our existing observable rental price indicators are flawed?
5. If in fact rents did fall during the recession, then is it possible that the brief boom in urbanizing migration was not a demand shock, but rather a supply shock as urban rental units suddenly, for reasons unclear here, fell in price?
6. If in fact rental units fell in price… why?
7. This rental data excludes rents received by corporations (classified under corporate profits) as well as sole proprietorships (under proprietor income); is data avilable for these? How do these series compare to the core rent series?

I don’t have very many of the answers, but I feel like there are probably other people on the interwebs who may have ideas.

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I’m a graduate of the George Washington University’s Elliott School with an MA in International Trade and Investment Policy, and an economist at USDA’s Foreign Agricultural Service. I like to learn about migration, the cotton industry, airplanes, trade policy, space, Africa, and faith. I’m married to a kickass Kentucky woman named Ruth.

My posts are not endorsed by and do not in any way represent the opinions of the United States government or any branch, department, agency, or division of it. My writing represents exclusively my own opinions. I did not receive any financial support or remuneration from any party for this research. More’s the pity.