The Nominal Rigidity of Apartment Rents

Abstract

This paper contributes to the empirical literature on price stickiness by documenting a high rate of nominal rigidity among apartment rents in the U.S. between 1974-1981. 29 percent of units had no change in nominal rent from year to year. Nominal rigidity was much higher among units whose tenants continued from the previous year, than those in which the tenant turned over. This suggests that the previous year's nominal price was used as a focal point in bargaining. Most of the nominal rigidity among units that turned over can be ascribed to grid pricing, while most of the incidence among the units that did not turn over can not be thus explained, and probably reflects downward rigidity instead. Units in single-unit and small buildings were much more likely to display nominal rigidity.