Report: Location-Based Rent Premiums Are a Good Investment

A working paper published recently by the National Bureau of Economic Research offers reason for optimism for renters paying high costs to live in desirable neighborhoods: that rent premium is a good investment that pays back in job opportunities, quality education, and cultural enmities.

Laura Bliss shares the news of the paper, authored by Esteban Rossi-Hansberg and Adrien Bilal, a Princeton University economics professor and Ph.D student, respectively. Here's how Bliss explains the big conclusion for renters who might feel disheartened by the cost of living in high-demand neighborhoods:

So, when you choose to move to a pricier and amenity-laden city, you’re transferring resources into the future—i.e., saving!—by establishing yourself near opportunities for higher pay and human capital, Rossi-Hansberg and Bilal argue. On the flipside, when you relocate to a community with a lower cost of living but fewer economic advantages, you’re pulling resources into the present that you might have gained in the future—i.e., borrowing.

Bliss notes that the study comes with the caveats that not everyone can afford to make those kinds of investment into the future.

"But, Rossi-Hansberg and Bilal hypothesize, if your location is an asset, it can also be 'sold' when you need the income," explains Bliss. "In other words, if you’ve just lost your job or been hit with a big bill, you can cash in your location by moving to a less-premium one." As detailed in the article, the paper presents evidence that individuals at lower income levels were more likely to "trade in" locations.