There's an odd story in the LA Times today:
In the last eight months, the rate of change in annual rental costs for new tenants has more than doubled, reaching its highest level on record, according to data from the Bureau of Labor Statistics reviewed by The Times. The
data, which are not in the public domain, show a starkly different picture for existing tenants — those who are renewing their leases instead of moving into a new apartment — suggesting that the cost of housing may continue to climb, despite some indicators to the contrary.
....The non-public data behind the topline number show a gulf between the prevailing conditions affecting those who moved residences and those who didn’t . Annual rental costs for new tenants jumped from 4.3% in July 2021 to 11.1% in March 2022.
The author points out that if you stay in an apartment, your rent rises gradually. But if you move to a new apartment, it spikes upward. This is true. So far so good.
But then there's the weird implication that the BLS is trying to hide this, despite the fact that they've calculated rent inflation the same way for decades. Before now, there's simply been no need to break out old and new rents for purposes of headline inflation calculations.
Besides which, there's nothing hidden about this anyway. The Census Bureau, not the BLS, is the main source for housing surveys, with much more complete and frequent data collection.¹ Among other things, they have an ongoing series that shows the median asking rent for vacant apartments, which is a much better look at how much new rents are increasing. Here are three ways of looking at that:
All three charts highlight a pre-pandemic figure followed by another for the first quarter of 2022. And rents have gone up. As the top chart shows, average new rents have gone up from $1,146 to $1,255 (adjusted for inflation) over the course of two years.
As a percentage of income, rents have gone up from 26% to 29%.
And then there's the annual growth rate (using inflation-adjusted rents). This was 1.3% just before the pandemic, then spiked in 2020, and came down in 2021. That's just the opposite of the Times figures, which show a low growth rate in 2020 and a big spike starting in 2021.
I usually use Census figures for rents if I can, since they're generally more reliable and up-to-date.² BLS figures, if I remember correctly, lag well behind reality due to their survey methodology. I believe that Larry Summers pointed this out once, claiming that official inflation figures for housing were likely to go up this year because they were measuring year-old rents that had already gone up. It was just taking a while for the lump to go through the python.
The odd thing is that Summers used this as a reason to be afraid of high inflation. I'd take it as just the opposite. Rent is a big part of the inflation calculation, but this year's rent inflation isn't real: it's merely telling us that rents went up last year. To me, that's a reason to discount it. It looks bad, but we should grit our teeth and resist a panicked response because we know that it's already gone away.
¹HUD also has rental figures, as well as annual projections. And of course there are private sources too. There are lots of places that can give you rent information that's sliced and diced in different ways.
²If you really want detailed data, you can use IPUMS data from the Census Bureau's Current Population Survey. The problem with this is not that it's hidden from the public. It isn't. The problem is that it takes a lot of expertise to use it.
Brava!!
Median rent vs. median income. Finally!
What about modal rent vs, modal income?
Rent controlled vs not rent-controlled? Maybe you need to rethink this data point, eh.
Rent controlled vs not rent-controlled? Maybe you need to rethink this data point, eh.
Unlikely. Landlords in the main are rational, and one thing they typically value highly is stability. Sure, maybe you could get 30% more if your tenant leaves. But then again they've been paying the rent on time for five years; before that you went through a string of unreliable tenants, and that period generated court costs, lost income, turnover expenses (broker fees, maintenance, etc). Be careful what you wish for.
For similar reasons the average (or median) asking price of currently available apartments is invariably a good deal higher than the average (or median) actual monthly rent being paid by tenants in occupied units (many of whom are valued by landlords, who want them to stay). Does this describe every tenant-landlord relationship? Of course, not. And needless to say it describes pretty much none of the tenant-landlord relationships featured in newspaper articles about the rent "crisis."
Anyway, if a landlord does have a vacancy, the rational thing to do is to maximize the rent being paid by an incoming tenant (consistent with find a suitable tenant; as any savvy landlord knows, keeping the rent "reasonable" will generate more interest, which allows the landlord to be choosier about who to rent to). So yes, vacancies are associated with higher rents than occupied units.
Also, only a microscopic percentage of rental units in America are subject to any kind of rent control.
All that may be true, but in the first half of the pandemic, many cities enacted temporary rent control measures. The jump you're seeing in that LA Times piece looks exactly like what you'd expect, once those temporary measures were lifted.
Easier, and cheaper, to keep a good tenant than find a new one.
Kevin should plot rents since 2000, not 2016, and then tell us that rents aren't a serious problem for most tenants.
This denial of economic strain he presents is remarkable.
"this year's rent inflation isn't real: it's merely telling us that rents went up last year. To me, that's a reason to discount it"
What's the opposite of cherry-picking favorable stats? (rejection of data)
Kevin is doing that in the quote above.
Are you a moron??? Plot rents back to 1990, what then????
While I agree with Mr Drum’s general gesture (shakes fist!) that the media exaggerates, everything, often with stats manipulation, and cherry picks stories to fit their click-harvesting catastrophizing narrative (side note; anyone else find NPR ridiculously unlistenable the past few years?)
BUT: I think adjusting rent downward by overall inflation might somehow fail to capture the feeling for tenants. Exaggerated for demonstration: what if rents were 80% of everyone’s monthly consumption bundle. But no other goods were experiencing inflation? So, only rent is increasing, at 50% per year. So 40% overall inflation in a weighted consumption bundle.
Does it then make sense to discount rising rents by inflation? I mean, if they ARE the inflation? Yes, a person’s monthly expenses are only increased by 40% overall, but 80% of our expenses are increasing by 1.5X…
The numbers are the same either way, but somehow it doesn’t feel right in an article SPECIFICALLY about rising rents to discount them by inflation, if the rents themselves are a large part of spending, and the increase is substantial.
Not saying those things are true now, just making a point about always insisting on an adjustment for inflation, in an article kinda about inflation, feels a bit circular? I dunno. I might be completely off!
Mr. Drum’s ratio of rent to median income I think captures the feeling better.
Here's a possible reason for the disparity.
The hypothesis about the rent spike is that it is because home-buyers are priced out of the market by rising interest rates. If so, then these reluctant renters would probably be in the upper half of market, leaving the median less affected than the average.
Off-topic, but I was happy to see how you wrote this sentence: "As a percentage of income, rents have gone up from 26% to 29%."
Most news articles these days would have said it backwards: "As a percentage of income, rents have increased to 29% from 26%." And then I'd have to do a small mental gymnastic to understand it.
That split second always slows me down and seem to me to be a counterintuitive way of describing a change in a figure over time. Why do journos/editors do that?
Great analysis!
I would add that in an unconstrained environment, rent is generally an income sensitive spending category. For much of the past 40 years, real rental expenditures have been rising below the real growth of other expenditures, but rent inflation has been above other inflation. Rents rising as a % of income are an important indicator of an important supply constraint. And, it also means that it has little to do with monetary policy. Inflationary monetary policy would raise incomes and, as a result, rents. But, there is no reason to expect rents to outpace incomes because of monetary policy. In the 1970s, when money was loose and housing was plentiful, rents remained low as a % of incomes. And, it's worse than it seems in the more recent data, because the supply problem tends to raise rents the most in low tier markets, so rent as % of income has been relatively stable for rich families, but has been rising for poor families.
https://fred.stlouisfed.org/graph/?g=RPhd