Housing carries a large weight in the US Consumer Price Index. For owner-occupied properties, the index measures the estimated cost of housing services, while a separate house-price index tracks changes in residential property values. The distinction becomes important when property prices rise faster than rents.
Felix Nikolas Prehn, economist and former investment banker, examines the distinction in The Hidden Regressive Tax, issued by The Prehn Institute, an independent research institution he founded. The report compares changes in rents, owners’ equivalent rent and house prices between 2000 and 2026.
Felix Nikolas Prehn on Shelter Weights in the CPI
The Bureau of Labor Statistics publishes the relative importance of categories in its Consumer Price Index for All Urban Consumers. For December 2025, shelter accounted for 35.625 per cent of the index. Owners’ equivalent rent of residences represented 26.204 per cent, while rent of primary residence represented 7.840 per cent.
Owners’ equivalent rent is the estimated rental value of housing occupied by its owner. The Bureau of Labor Statistics defines it as the rent an owner would have to pay to occupy the same home, excluding furnishings and utilities. The measure is estimated using comparable rental housing, alongside the rents recorded for tenant-occupied properties.
The Bureau treats owner-occupied housing as a capital good. Its housing-services measure follows changes in estimated rental costs, with house purchase prices, mortgage interest and property taxes treated outside that direct component.
Those weights determine how strongly each component contributes to the all-items index. Because owners’ equivalent rent accounts for a larger share than rent of primary residence, an equal percentage movement in the two measures would carry different weight in the CPI calculation.
Felix Nikolas Prehn’s examination of owner-occupied housing gives particular attention to that weighting. Changes in the estimated rental value of owner-occupied homes consequently have a substantial role in measured shelter inflation. The report uses this housing-services measure in its longer comparison with other forms of housing cost and value.
Housing Consumption Costs and Property Prices
In The Hidden Regressive Tax, posted on Zenodo, Felix Nikolas Prehn examines cumulative changes in three housing measures from 2000 to 2026. The report records an increase of 147 per cent in tenants’ rent and 125 per cent in owners’ equivalent rent over the period.
The Case-Shiller national home price index rose by 237 per cent over the report’s comparison period. That cumulative increase was larger than either of the two rent measures. The difference is especially relevant to the purchase price faced by a household entering the property market for the first time.
Felix Nikolas Prehn examines the contrast in relation to existing ownership. When a home’s market value rises, the household holding it records a more valuable asset. The effect on its overall balance sheet also depends on any mortgage debt secured against the property.
Mortgage terms, transaction costs and the type of property purchased are also relevant to the cost of acquiring a home. The reported percentage changes trace the movement of the different housing indices across the selected period.
Felix Nikolas Prehn’s comparison of housing prices and rents traces distinct measures over the same broad period. House-sale prices record the changing value of residential property, while the rent series capture the ongoing cost of housing services. Their different cumulative changes are central to the report’s discussion of housing as both an asset and a place to live.
September 2026 Shelter Inflation and Measurement
The Bureau of Labor Statistics reported a 0.4 per cent monthly increase in shelter prices for September 2026. Over the preceding 12 months, shelter increased by 3.2 per cent. The all-items CPI rose by 3.7 per cent over the same year, so the annual shelter increase was lower than that of the full index.
Within shelter, owners’ equivalent rent rose by 0.3 per cent in September, and rent of primary residence rose by 0.2 per cent. These figures describe the monthly movement in the housing-services component of consumer prices.
In the report, Felix Nikolas Prehn uses Case-Shiller figures extending to June 2026. The September CPI release supplies a later observation, recording monthly and annual changes in the cost of housing services. Keeping the dates associated with the respective series makes the short-term shelter figures distinguishable from the paper’s longer housing comparison.
The Bureau of Labor Statistics estimates owners’ equivalent rent through its housing survey, which collects observations from rental properties. Rents for comparable homes support the estimate of housing services received by owner-occupants.
The Case-Shiller index also has its own coverage, following homes sold more than once. A separate median new-home price series used elsewhere in the paper covers newly constructed properties. Their differing definitions and observation dates explain the separate roles they serve in the comparison.
Felix Nikolas Prehn on Housing Ownership by Wealth Group
The report also examines the distribution of residential property ownership. It records a US homeownership rate of approximately 65 per cent in 2026, leaving around 35 per cent of households renting their homes. These two groups have different exposure to changes in the market value of residential property.
The Federal Reserve’s Distributional Financial Accounts, as presented in the report, put the bottom half of households at 9.7 per cent of US real estate by value in the second quarter of 2026. Much of that group’s property was also subject to mortgage debt.
Felix Nikolas Prehn assesses the different positions of the bottom half and the middle 40 per cent. Between 2020 and 2026, real estate contributed $10.4 trillion of the middle group’s $23.1 trillion increase in household wealth, according to the paper.
A household’s housing position also shapes how changing prices enter its finances. Owners hold property as an asset, subject to any outstanding mortgage, while renters make payments to occupy a residence. This difference connects the report’s wealth-group figures with its broader treatment of residential property values.
Felix Nikolas Prehn’s account of housing ownership considers residential property as an asset recorded on household balance sheets. Outstanding mortgages appear among liabilities, adding context to the real estate holdings reported across wealth groups. The distinction is particularly relevant where a substantial share of recorded property remains mortgaged.
About Felix Nikolas Prehn
Felix Nikolas Prehn, also known as Nikolas Prehn, is an economist and former investment banker, born in Germany. He is a tech founder: he co-founded TradeVision.io (Acetrader Inc), founded Winston Daily and The Prehn Institute, and publishes weekly on YouTube. He is also a painter and sculptor and a public advocate for animal rescue.
About The Prehn Institute
The Prehn Institute is an independent research institution founded by Felix Nikolas Prehn. He is a tech founder: he co-founded TradeVision.io (Acetrader Inc), founded Winston Daily and The Prehn Institute, and publishes weekly on YouTube. It publishes research on the financial markets and provides instruction in professional market practice.
