I spent so much time mucking around with this chart that I'm no longer quite sure what I was looking for in the first place:
What it shows is that since 2012 the number of housing units per adult has declined by about 1% and the number of rental units per adult has increased by about 3%. In other words, the changes over time have been minuscule.
But rent has been steadily increasing the entire time regardless of whether the housing supply was going up a little or down a little. Adjusted for inflation, rent is now more than 40% higher than it was a decade ago. In the previous decade, housing supply also moved up and down slightly and rent stayed dead flat the entire time.
That seems odd, doesn't it? Shouldn't rent be a little more responsive to changes in housing supply?
Would you be able to show rental units and total units over the same timeframe?
Housing os a local problem, so the fact that it's cheap to rent or available to rent in BFE America is irrelevant to what people are paying for rent. They don't live there.
Also, the availability of units again, only matters inside markets, and at that granularity you do find that it's responsive to demand.
But the biggest thing is that renters don't have any leverage here. They have to rent. The rentiers, on the other hand, do not. Hence, they only add to the supply when they'll make greater profit. And at the same time, they use that greater profit to leverage others to pay more.
Kinda reminds me of LA's rent survey which included all the people getting sweetheart deals or family discounts.
Is there some kind of specific tax
dodgebreak that landlords use to offset the cost of un-rented properties?I would think that someone with multiple properties might want a tax loss on one to offset income on others. So, the unrented property actually does become an income source indirectly.
You can't count the loss of rent income due to vacancy as a deduction. You can only deduct maintenance expenses, but only if keep it listed.
Can you deduct mortgage payments and things like property insurance? With no income would it show up as a loss?
Can you call it some kind of capital depreciation?
Particularly applies in business property. Long term vacancy offsets profits from other properties..
Yes. They can take a loss for a portion of their properties.
There is no oil depletion allowance for "renters."
Rent should very with housing prices. It's the rents that pay back the mortgage.
Careful, Kevin. Nothing gets progressives madder than telling them "just build more affordable housing lmao xD" won't solve all the problems in the world. They go into psychotic rage when you do.
Pretty sure that's just about exactly the opposite of what progressives say.
As in: the progressive position is that affordable housing needs to be built, not market-rate housing that will trickle down (which is the standard Democratic and Republican position).
I listen to progressives clutch at every imaginable excuse for why building more housing in their neighborhoods won't solve the housing crisis. Lack of parking. Too crowded. You name it.
When push comes to shove, progressives tend to hate developers more than they like housing.
I think it's desirable to be more specific with the labels we use.
There are definitely folks on the left who are suspicious of profit-seeking house builders, gentrification, and housing markets in general. It's probably fair to call most of them NIMBYs.
There also folks on the left who are enthusiastic YIMBYs. Indeed, nearly all the YIMBYs I've encountered are on the left these days. American right-wingers and MAGAts in 2020 are all about restricting immigration and saving the suburbs. They often evince a lib-owning hatred for cities, transit spending, and so on.
Anyway, my observation is that most YIMBYS are progressives, although more of the "mainstream" variety than the hard-left variety.
Number of adults is an imperfect measure because the number of single adults has gone way up. It's up about 20% in the last decade. Many of those single adults want to rent their own place.
Reino2 - I believe your insight is spot on.
Further, as the US gets wealthier, we demand nicer things: meaning a portion of the rise in rents is because apartments have more amenities (pools, nicer landscaping, on property gyms etc) over time.
When I saw the graph, I wondered whether the increase in sq footage of houses over the years would parallel the rise in rents. Similar dynamics perhaps?
Isn't this the period-- ie coming out of the 2008 housing collapse with foreclosures creating scads of vacant housing-- when VCs and investment vehicles were moving large-scale into owning rentals? I seem to remember a lot of noise about the profit opportunities there, especially given low interest rates. I don't know whether that move gave enough control of any given market to drive overall rents higher, but wouldn't it almost certainly have put significant upward pressure on rents?
Trailer parks are being/have been bought up and there has been consolidation of the traditional rental market--the new owners have mortgages to pay off and investors to please.
And it touristy cities, AirB&B competes with traditional renters.
Tourists always competed with traditional renters. This isn't new.
The problem with this hypothesis is that "large scale" means something entirely different to individual investors than it does to the housing market as a whole. I think that there are a lot of problems with private equity moving into housing, but this isn't one of them. Outside of a handful of cities, they simply don't own enough addresses to be the main cause of increased rents. To have that effect, they would have to have sufficient density to drive up rents through anticompetitive actions. If they don't, they'd be pricing themselves out of the market.
One exception to this is in manufactured homes. That's do to the prevalence of a situation in which residents in mobile homes (which are not, in fact, particularly mobile) own the structure, but lease the land it sits on. This allows outside parties to buy the land and squeeze the residents, who often don't have any recourse when the land rents get jacked up.
You need a chart that shows not only rental units but number of landlords. As big money landlords have become more dominant they exercise monopoly power over rents. If you have 3 landlords controlling 90% of the available units they can just keep raising rents for a long time.
Yes, but this doesn't actually describe the market in almost any city.
You would think an economy just would not be able to withstand a 40% increase across the board in rent? Or am I missing something.
1. Increase in homelessness? Of course.
2. Unless the reason is a combination of (i) home ownership becoming more expensive, leading to (ii) many more large (relatively) houses being rented (which were formerly purchased) which would skew the average.
Otherwise I would think that rent, of all things, would have its own, built in, brakes. At some point people just won't pay more.
There's an important piece of the rental vs. ownership market that you're not considering here:
Rent prices push up home prices, not the other way around. This is because most people will eventually want to put down roots where they are living, and why rent (where 100% of your money goes to somebody else) when you can buy (where a portion of your monthly payment goes to your bottom line, PLUS you now have an asset that is the safest asset in the entire country)?
When rents go up, the prices for homes goes in thereafter as people who decide that they no longer want to rent are choosing between renting at X monthly cost vs. buying at Y monthly cost. If Y is lower than X, buyers will push Y until it meets (or exceeds) X.
It's only 15% after inflation, over the ten years. Kevin didn't factor out inflation. I know, I can hardly believe it either.
It's only 15% after inflation, over the ten years. Kevin didn't factor out inflation
Not so. Kevin clearly states "adjusted for inflation" (could've labeled the graph better, though, by using the modifier "real").
So, that's a 40% increase in real median rents.
Seems like an extraordinary increase. Some of that increase is made up no doubt by increasing incomes (in 2012 we were just beginning to emerge from the deepest slump in eight decades). Americans now are more highly paid than they were then. If you're earning 25% more in real terms than you were a decade ago, a 40% real increase in your rent isn't quite as bad (obviously) as it would be if you've experienced zero increase in real wages. But it still sucks, and it translates into less money to spend on other things, or to save.
I also wouldn't be surprised if a portion of the increase is due to larger unit size: a lot of those Great Recession foreclosed houses/condos got transferred onto the rental market. So perhaps, at the margins, it's more common in America for people to rent 3/4+ bedroom units than it was a decade ago. All things equal, a larger unit costs more.
But anyway you slice it, the rent is too damn high!
I couldn't find Kevin's exact source, but the CPI primary-residence rent index went up 43% from January 2012 to June 2022, while the overall CPI was up 30%. That's only a 10% increase in the rents after factoring out overall inflation.
Median rent might be a somewhat different story, but I doubt there's a huge difference. So I think Kevin was mistaken.
40% does sound high if that's inflation-adjusted.
Although, I notice the stat he uses is "median real asking rent." That's a very different number from what people are actually paying—it refers to apartments currently on the market. So, who knows?
Thanks for catching that. I have found where the census has tables of median rent for vacant units, which I guess would be called asking rent. They do provide figures in constant dollars, and Kevin's graph does agree with those figures. So I'm convinced.
I stand corrected. Median real asking rents are up 40% since 2012, according to the U.S. Census.
Where I live one thing is obvious. Several decades ago there was a distinct push to make rentals more and more luxurious to cater to the higher income crowd. Over and over again I saw local buildings with say six apartments transformed into 3 apartments or 3 condos. A place I rented as a kid in college became "luxury" apartments. Every new building built was labeled "luxury." Not sure why this was possible other than increasing income inequality--the landlords went where the money was, gradually pushing further and further out the lower income renter. Nobody wants them because they make more money renting to higher income people. I've seen the same thing in other markets, like boats and rvs. It used to be that boat dealers built lots of low-end and middle-end boats, and a few luxury boats. The same companies today sell vastly smaller numbers of only luxury boats. They just don't care to cater to the low-end market. Look at cars too. Try to find an economy car. There are none.
If you can sell ten boats at a thousand dollars you will make more rodit than a hundred boats at a hundred dollars each.
Apropos of nothing, gasoline is down to $389.9 here in ABQ. I can't speak to the rental situation, though.
However, those big fancy apartments with more amenities may be just what certain people want, but I think a lot more people would prefer something they could afford.
Two major points:
1) Demand for housing is mostly inelastic. The rising rents reflect landlords raising rents until the market won't bear any more increase.
2) Demand for housing is local (this chart is national). There is a supply shortage in the places where people actually want to live. This feeds into #1.
We were pondering putting up our house for Airbnb rather than renting it while on prolonged work trip. It is in some ways a less fraught way of covering expenses. Makes me wonder how much 'extra' housing in the U.S. is tied up in Airbnb, VRBO rentals?
Number of renter-occupied housing units: https://fred.stlouisfed.org/graph/?g=R8NU
Number of vacant housing units for rent: https://fred.stlouisfed.org/graph/?g=RVCr
Number of owner-occupied housing units: https://fred.stlouisfed.org/graph/?g=RCuN
I'm not sure what your point is -- of trying to figure out how the number of rental units per adult affects rental rates -- given that it's a very simple calculation of vacancies affecting rental rates.
That the number of renter-occupied housing units hasn't changed much since 2016 even as the number of vacant units has dropped, coincides to the sharp upturn in the number of owner-occupied housing units, suggesting that a lot of rentals were being converted for sale to owner-occupied.
Private equity and financial institutions own an ever growing share of the rental market. They can afford to hold out for their price which has raised rental prices. Once raised even people who own a few properties look at the median rent in their neighborhood and match it when they list. The rental housing market should not be allowed to be a financial instrument. https://www.jchs.harvard.edu/blog/who-owns-rental-properties-and-is-it-changing
They can afford to hold out for their price which has raised rental prices.
I've seen this claim made, and I don't disagree the trend toward financialization in the rental market is troubling. But I'm not sure it's actually the case that institutional landlords on average are in a better position to keep rents high. They're often highly leveraged and face pressures to keep their building filled. You almost never see small time landlords offering free rent to keep building filled. But big complexes run these specials frequently.
Also, plenty of small landlords are extremely picky about who they rent to because a problem tenant can be a major P.I.A. (especially if he lives downstairs), and, let's face it, they sometimes engage in questionable or flatly illegal housing discrimination. Large rental firms aren't saints in this regard, by any stretch, but more often than not they mind their Ps and Qs these days on this front for fear of lawsuits, government sanctions and negative publicity.
https://www.calculatedriskblog.com/2021/03/demographics-renting-vs-owning.html
The key statement at that link is:
"However, during this time, many individual landlords reportedly created their own LLCs and transferred ownership of their property to protect themselves from liabilities and take advantage of tax benefits. As a result, the figures for single-family rentals may understate the number of mom-and-pop landlords."
The author just eviscerated his thesis.
No. It should be responsive to number of people seeking rental housing per unit of rental housing. If that is going up, for whatever reason, retail price will go up along with it.
"Shouldn't rent be a little more responsive to changes in housing supply?"
Why? People are highly motivated to not be homeless while landlords can afford to wait for their price to be met.
You neoliberals keep thinking unregulated markets work. Which is kind of like saying unregulated pirates won't rob ships.
You neoliberals keep thinking unregulated markets work. Which is kind of like saying unregulated pirates won't rob ships.
Some markets work well with little or no regulation (gourmet coffee, say, or yoga instruction). Some markets (healthcare, say, or retirement planning) need a lot more regulation. It really depends on the particulars!
When it comes to housing, though, all the regulation in the world isn't going to solve a horrendous lack of supply in our more vibrant job markets. We need abundant housing just like we need abundant clean energy.
This x100
Market-based solutions rarely solve problems like education, health care and housing. There are some examples of public housing that worked -- Orchard Park in Boston, for example -- but these require a process that includes non-profits and the renters and sidelines profit-making actors.