The repeat rent model in the presence of variable deposits

Accurate measurement of rent indices is essential in various contexts, including inflation assessment and housing market evaluation. We propose a novel repeat rent model specifically designed to accommodate variable deposits, a characteristic common in rental contracts in countries where substantial deposits are commonplace in rental contracts. To address deposit variability, we introduce time-varying deposit-rent conversion rates as additional parameters. Utilizing transaction-level data to apply this model to the rental market in Seoul, South Korea, our rent index reveals a noteworthy trend: rents began increasing in late 2019, predating the COVID-19 pandemic. This finding contrasts with other appraisal-based or survey-based rent indices, which posit that the rent surge began after the pandemic’s onset.