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According to the 2019 American Community Survey, more than 44 million households in the United States are renters. Renting a home can provide flexibility for those who might expect to move in the near future. Owners of rental properties may require tenants to sign a lease to rent a housing unit. Leases commonly define how long the tenant can occupy the unit, how much rent is due each month, and any penalties for late payments or terminating a lease early.
After more than a year of planning, the Bureau of Labor Statistics (BLS) added new questions about leases to the Consumer Price Index (CPI) Housing Survey in October 2020. These questions were added to better understand and explain rent changes over time. This Spotlight on Statistics summarizes responses to the two new leasing questions:
A fundamental element of a lease is stating how long a tenant can occupy a unit. Called a lease term, the written form typically includes the start and end dates for the tenancy. During tenancy, the rental amount and rules listed on the lease remain fixed. According to responses to the CPI Housing Survey from January 2022 to June 2022, 59.6 percent of leases were for 12 months, 31.8 percent of leases were month to month, and 8.6 percent of leases were some other length.
About 9 percent of tenants had a lease term other than 12 months or month to month. Of these tenants, 29.9 percent had a 24-month lease, 14.8 percent had a 13-month lease, and 12.4 percent had a 6-month lease during this period.
The average length of leases varies from state to state. Among the states with more than 100 responses in the CPI Housing Survey, California had the highest proportion of leases that are month to month (62.7 percent), followed by the District of Columbia (58.4 percent) and Arkansas (57.1 percent). California and the District of Columbia also have the highest average rents, suggesting that tenants may have less appetite to enter long-term leases in high-rent areas in the United States.
The second new leasing question on the CPI Housing Survey is the year and month that the tenant moved into the rental unit. Combining the responses to the length-of-lease question with move-in data, CPI Housing Survey data indicate a clear trend.
Newer tenants tend to have a fixed, 12-month lease term. Nearly 92 percent of tenants who have lived in the unit for less than 1 year had such a lease. Yet, as the time living in the unit increases, leases tend to more often be month to month. For tenants who had lived in the same unit for 5 or more years, only 49.7 percent had a 12-month lease, while 50.3 percent reported a month-to-month lease during this period.
This question concerning the month and year of the start date was necessary for BLS economists to determine if a new lease had been signed in the 6 months between data collection. Responses to this question reveal that nearly one-third of leases started in the summer months. The first month of a lease was June, July, or August for 31.3 percent of tenants during this period. Leases were least likely to start in February, November, or December.
When we combine responses to the occupancy and leasing questions, we find rent increases were more common for new tenants. For leases started in the 6 months before an interview, the rent increased in 76.4 percent of interviews where the tenant was not the same as 6 months earlier. The rent increased in 54.0 percent of observations when the tenant was the same as 6 months earlier. For these tenants, the rent stayed unchanged in 39.6 percent of interviews from January to June 2022
The most frequent outcome with a new lease is an increase in rent, whether or not the tenant was the same as 6 months earlier. In the first half of 2022, the average percentage change in rent was 12.2 percent for new tenants and 3.5 percent for same tenants but with a lease renewal in the last 6 months. Since the first half of 2021, rent increases have accelerated for both types of renters. However, rent gains were more pronounced for units with new tenants.
Ben Houck is an Economist in the Branch of Consumer Prices at the U.S. Bureau of Labor Statistics. For questions about this Spotlight, please email email@example.com.
To produce the Consumer Price Index, the Bureau of Labor Statistics surveys approximately 8,000 rental units in 75 metropolitan areas across the U.S. each month for its CPI Housing Survey. Rent data are collected from the same unit every six months and are provided by owners, managers, landlords, or tenants via personal visit, telephone, or email. The data represent approximately 26,500 responses to Housing surveys conducted over six months between January 2022 and June 2022. In some cases, missing responses, refusals, and responses of “Don’t Know” were excluded from graphs for clarity
The new leasing questions assist BLS economists in ensuring the accuracy of the CPI in two ways. First, the information assists economists as they analyze rent movement. Responses to the leasing questions may corroborate large rent increases when the tenant did not change, but a new lease was signed, since the last interview 6 months prior. Secondly, as responses accumulate over time, economists plan to perform additional research for same tenants with new leases as well as how rent trends differ for leases of various lengths. Previous research on same and new tenants revealed that rents increase faster with a change in tenant. Economists expect a similar trend may occur with a change in lease.
The information in this Spotlight can help BLS data users to better understand the Housing portion of the CPI. Housing is 42 percent of the CPI, and two components — Rent of Primary Residence and Owners’ Equivalent Rent of Primary Residence — comprise 72 percent of Housing. Put differently, the data collected in the Housing survey are incredibly important to the CPI. The lease data discussed here may explain why Housing components in the CPI tend to be less volatile than other parts, such as Apparel or Food and Beverages, in part because of the popularity of fixed, 12-month lease terms.