Research

Does a landlord's property tax bill affect a new tenant's rent? According to standard economic theory, it should not—the law of one price implies that identical rental units in the same market should be priced identically, despite heterogeneity in property tax costs. This paper provides new evidence that a landlord's property tax bill does affect rent for new tenants, violating the law of one price. I investigate the effect of heterogeneous property tax shocks on rents using a unique, quasi-experimental setting in California. California's Proposition 13 creates large discrepancies in property tax liability among otherwise similar rental units, and these discrepancies are exacerbated quasi-randomly around a sale. Using a novel, comprehensive dataset on new tenant rents from the City of Berkeley, I find strong evidence that landlords faced with quasi-random, building-level property tax shocks pass through $0.50-$0.89 per $1 of the property tax shock to renters. The results are robust to the inclusion of landlord size, renovations around a sale, and a property's purchase price. I propose and empirically motivate an explanatory model of heterogeneity in landlord sophistication that can rationalize the observed positive relationship between rent and property taxes.

This paper investigates the behavioral response to an increase in taxation of inherited property in California. We document parent-child property transfers for two populous counties in California, San Francisco and Los Angeles County. We identify a large intertemporal elasticity of property transfers, finding a 13-18 month acceleration in property transfers leading up to the tax increase. We disaggregate responses by Census tract income and find that the top income decile in each county is the most responsive group. These estimates are much larger than what is typically found in the inheritance tax literature, and challenge the "control of wealth" theory of bequest planning. The magnitude of the short-run behavioral response cautions against transition windows for tax policy changes, as they can 1) delay expected government revenue sources and 2) exacerbate inequality in taxation if high-income households are more responsive than other groups. 

Rent is the largest component of the Consumer Price Index, yet how landlords adjust contract rents remains poorly understood. We uncover five stylized facts about the dynamics of rental price inflation using 25 years of comprehensive administrative data from Berkeley, California. First, rents bunch at and just below multiples of $100, consistent with efforts to exploit tenants’ left-digit bias. We find that the degree of bunching is highly correlated with proxies for landlord sophistication, suggesting that these patterns reflect a combination of misoptimization and market power. Second, rent-setting displays strong nominal rigidity at tenant turnover: roughly one-fifth of units that change hands within two years show no price change, despite clear economic incentives to adjust and landlords already incurring the fixed cost of listing the unit. Third, rent adjustments are highly state-dependent: the frequency and size of both price increases and decreases move with market conditions, in contrast to most non-housing CPI components. Moreover, when inflation or deflation pushes rent growth away from typical trends, landlords engage in more round-number bunching and less left-digit pricing, revealing a novel cognitive cost of inflation. Fourth, rental prices exhibit pronounced seasonality, with summer lease starts commanding premiums of roughly 4 percent. Fifth, the sensitivity of rent adjustments to the business cycle varies by landlord size, with larger owners adjusting rents more flexibly than smaller ones. We replicate many of these patterns in nationally representative survey data. Together, these findings provide new moments for calibrating sticky-price models and highlight the role of cognitive frictions and firm heterogeneity in shaping inflation dynamics.