Flexible Rent Setting and Rental Income

Using new high-frequency rent data for apartments in Chicago, this paper documents the origin of rent stickiness and its implications for income distribution in the rental housing market. This paper finds that neither Calvo nor Taylor's models fully explain rent-setting behaviors because apartments adjust rents in response to seasonal rental-housing demand and competition, showing they choose the timing and degree of rent changes. While menu costs also do not fully explain heterogeneous rent-setting behaviors across landlords, flexible rent settings of apartments owned by institutional, large, and experienced landlords suggest the lack of expertise in rent pricing leads to rent stickiness. The flexible apartments earned higher rental income than sticky apartments, and the rental income gap between flexible and sticky apartments widened during the COVID-19 pandemic, implying income or wealth shifts toward institutional landlords from mom-and-pop landlords when the rental housing market is volatile.