Quantifying and Explaining Stickiness in Housing Rents: A Turkish Case Study with Micro-Level Data

Aysoy, Cem and Aysoy, Cevriye and Tumen, Semih (2014): Quantifying and Explaining Stickiness in Housing Rents: A Turkish Case Study with Micro-Level Data.

Abstract

Using a national panel of housing units, this paper documents that the rate of nominal rigidity in housing rents is high in Turkey between 2008 and 2011. We find that, on average, 31.5 percent of the rents did not change from year to year in nominal terms. We then ask if the incidence of nominal rigidity depends on the turnover status of the housing unit. We show that 35.4 percent of the nonturnover units had rigid rents, while for only 17.1 percent of the turnover units rents did not change. We also present evidence that grid pricing is associated with more than half of the nominal rigidity in housing rents in our sample. The household- and individual-level determinants of the nominal rigidity in rents and turnover status are also investigated using the micro-level details available in our dataset. We document that, relative to the low-income tenants, high-income tenants are less likely to have rigid rents and they are also less likely to change units frequently. This finding suggests that search and moving costs impose frictions that amplify the opportunity costs of high-income tenants; thus, they are more likely to agree on reasonable rent increases for the purpose of saving time and reducing emotional stress.

• Item Type: MPRA Paper
• Language: English
• Keywords: Housing rents; nominal rigidities; turnover; grid pricing
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R31 - Housing Supply and Markets

References

Baharad, E. and B. Eden (2004). Price rigidity and price dispersion: Evidence from micro data. Review of Economic Dynamics 7, 613-641.

Bajari, P., C. L. Benkard, and J. Krainer (2005). Housing prices and consumer welfare. Journal of Urban Economics 58, 474-487.

Banks, J., R. Blundell, Z. Oldfield, and J. P. Smith (2010). Housing price volatility and downsizing in later life. In D. A. Wise (Ed.), Research Findings in the Economics of Aging, pp. 337-379. NBER.

Baudry, L., H. Le Bihan, P. Sevestre, and S. Tarrieu (2007). What do thirteen million price records have to say about consumer price rigidity? Oxford Bulletin of Economics and Statistics 69, 139-183.

Bils, M. and P. J. Klenow (2004). Some evidence on the importance of sticky prices. Journal of Political Economy 112, 947-985.

Bouakez, H., E. Cardia, and F. J. Ruge-Murcia (2009). The transmission of monetary policy in a multisector economy. International Economic Review 50, 1243-1266.

Caballero, R. J. and E. M. R. A. Engel (1991). Dynamic (S;s) economies. Econometrica 59, 1659-1686.

Calvo, G. (1983). Staggered prices in a utility-maximizing framework. Journal of Monetary Economics 12, 383-398.

Caplin, A. S. and J. V. Leahy (1991). State-dependent pricing and the dynamics of money and output. Quarterly Journal of Economics 106, 683-708.

Caplin, A. S. and D. F. Spulber (1987). Menu costs and the neutrality of money. Quarterly Journal of Economics 102, 703-725.

Cecchetti, S. (1986). The frequency of price adjustment: A study of the newsstand prices of magazines. Journal of Econometrics 31, 255-274.

Dougherty, A. and R. Van Order (1982). Inflation, housing costs, and the consumer price index. American Economic Review 72, 154-164.

Fujita, M. and G. Ramey (2009). The cyclicality of separation and job finding rates. International Economic Review 50, 415-430.

Genesove, D. (2003). The nominal rigidity of apartment rents. Review of Economics and Statistics 85, 844-853.

Gertler, M. L. and J. V. Leahy (2008). A Phillips curve with an Ss foundation. Journal of Political Economy 116, 533-572.

Golosov, M. and E. R. J. Lucas (2007). Menu costs and Phillips curves. Journal of Political Economy 115, 171-199.

Gordon, R. J. and T. van Goethem (2008). A century of downward bias in the most important component of the CPI: The case of rental shelter, 1914-2003. In E. R. Berndt and C. R. Hulten (Eds.), Hard-to-Measure Goods and Services: Essays in Memory of Zvi Griliches, Studies in Income and Wealth, No.67. Chicago, IL: University of Chicago Press.

Halket, J. and S. Vasudev (2013). Saving up or settling down: Home ownership over the life cycle. Review of Economic Dynamics, forthcoming.

Heidhues, P. and B. Koszegi (2008). Competition and price variation when consumers are loss averse. American Economic Review 98, 1245-1268.

Hoffmann, J. and J.-R. Kurz-Kim (2006). Consumer price adjustment under the microscope: Germany in a period of low inflation. ECB Working Paper #652.

Kashyap, A. K. (1995). Sticky prices: New evidence from retail catalogs. Quarterly Journal of Economics 110, 245-274.

Klenow, P. J. and O. Kryvtsov (2008). State-dependent or time-dependent pricing: Does it matter for recent U.S. inflation? Quarterly Journal of Economics 123, 863-904.

Lach, S. and D. Tsiddon (1996). Staggering and synchronization in price-setting: Evidence from multiproduct firms. American Economic Review 86, 1175-1196.

Lai, R. N., K. Wang, and J. Yang (2007). Stickiness of rental rates and developers' option exercise strategies. Journal of Real Estate Finance and Economics 34, 159-188.

Levy, D. and A. T. Young (2004). "The real thing": Nominal price rigidity of the nickel coke, 1886-1959. Journal of Money, Credit, and Banking 36, 765-799.

Midrigan, V. (2011). Menu costs, multiproduct firms, and aggregate fluctuations. Econometrica 79, 1139-1180.

Nakamura, E. and J. Steinsson (2008). Five facts about prices: A reevaluation of menu cost models. Quarterly Journal of Economics 123, 1415-1464.

Sheshinski, E. and Y. Weiss (1977). Inflation and costs of price adjustment. Review of Economic Studies 44, 287-303.

Smith, S. K., S. Rayer, E. Smith, Z. Wang, and Y. Zeng (2012). Population aging, disability and housing accessibility: Implications for sub-national areas in the United States. Housing Studies 27, 252-266.

Verbrugge, R. (2008). The puzzling divergence of rents and user costs, 1980-2004. Review of Income and Wealth 58, 671-699.

Wang, K. and Y. Zhou (2000). Overbuilding: A game-theoretic approach. Real Estate Economics 28, 493-522.

Zbaracki, M., M. Ritson, D. Levy, S. Dutta, and M. Bergen (2004). Managerial and customer costs of price adjustment: Direct evidence from industrial markets. Review of Economics and Statistics 86, 514-533.