This is kind of odd. The Census Bureau reports that rental vacancies are up. This should mean lower rents, but Zillow reports that rent is on the rise:
Note that vacancy rates are for large cities and rent is for all urban areas.
In any case, I don't quite know what to make of this. Vacancies are up 6% and rent is up 1.1% over the past quarter. But if there are more vacancies, why are prices rising?
Because landlords have most of the power and can simply raise rents if they want to?
Also, maybe it has something to do with which units in particular are vacant?
There is a whole lot more at work here than a simple if-this, then-that relationship between vacancy rates and rental rates.
Note also that the vacancy rate has merely returned to its pre-pandemic and late-2020 levels (and that even its low point is not that much lower than current). Landlords discovered during 2022 that they could simply jack up rent almost as much as they wanted to and tenants would have to pay it because they have no choice.
Another thing to point out is that housing is a replacement good. The cost of buying a home/paying a mortgage has gone up (home prices haven't fallen proportionally with interest rate increases - which is no surprise given constricted supply). We can therefore expect that rents will rise as the buy-vs-rent price threshold has risen. While rent vs. mortgage is not the only factor, they are two things that feed off of each other and will only increase (and provide further upward price pressure) in perpetuity - unless we build a few million units of housing in very short order.
Rhetorically: what do you think the chances of that are?
because you don’t understand how averages work and when to use them. Real estate is highly local, you can’t just average together two different data sets, that cover two different geographies, and then wonder why you can’t see a relationship. I mean, you CAN, but you’d be an idiot.
That wouldn't apply to the vacancy rate, tho.
Why are prices rising? Perhaps because most large property managers use RealPage pricing software, which encourages them to focus on total income, not just filling empty apartments, and because property managers (illegally) exchange pricing information? (https://www.propublica.org/article/yieldstar-rent-increase-realpage-lawmakers-collusion )
This too!
I'll offer a cautionary tale about using online prices for price settings. Back in 2011, there was an entomology textbook, "The Making of a Fly", that was out of print. When a blogger checked on the price for a copy, there were two available. One was listed at about $2.2M and the other at $1.7M. The blogger decided something was screwy and tracked the prices for a while. The two prices continued to rise.
It took a little while to figure out, but there was really only one copy. The seller who didn't have the book was automatically setting his price at a 27% premium figuring that this would be enough to buy the book from the other seller and make a nice profit. The seller who did have the book was automatically setting his price at 0.2% less than the highest price. Each time one ran his pricing script, the price would rise and rise and rise.
Eventually, the higher price topped out around $24M.
I wonder what kind of scripts various landlords are using and whether they interact with other scripts. There are arguments for charging a bit more to "test the market", and there are arguments for undercutting someone else's price. I get the impression that the former is more likely. Sellers understand that they want to avoid downward spirals, but they are perfectly happy to ride rising ones.
(For a Wired article on this: https://www.wired.com/2011/04/amazon-flies-24-million/)
Sellers don't just have to avoid downward spirals, they can simply take advantage of being part of a rising one - because people can't really choose not to have housing, and there are more people who want housing than there is housing. Seller's market forever.
This is probably the most likely reason. Kevin has written in the past about how companies buying up houses shouldn’t affect prices since they own only a small percent of the market. I disagree. They keep the pressure on by owning in demand locations and keeping those prices high which keeps all prices higher.
Same here. It doesn’t matter that other landlords can offer lower prices. The pressure to raise prices continues so long as the big landlords keep raising prices no matter how many vacancies there are.
And them just bidding and failing pushes prices higher.
I expect there's a lagging effect: if the rental markets weakens, landlords will do their utmost to lower rents, up to an including holding out for the price they want, even if that means leaving a unit unoccupied for a time period. Also, many large landlords will respond to market weakness by offering free rent, which typically is not factored into such surveys (because the quoted monthly rent doesn't decline).
Agree.
I'm with Jasper (and Dr Paul Krugman!) that rental rates are a lagging indicator. They don't change from month to month for any given renter, who tends to have a "lease" which sets prices for perhaps a year at a time.
So, perhaps actual rates are up much more than 1.1%, which explains in part the greater vacancy number. Prices go up, demand goes down!
Agreed.
People has posted various reasons, but first thought was that vacancies are high because the rates have gone up. Some people refuse to understand the connection between higher prices and lower sales.
It might be that rents and vacancies and landlord profits are all rising.
https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent
Hey, you're the one always going on about lag times. Even if vacancies are rising, landlords are going to wait a few months at least to see if they get a taker. If they don't, they might consider cutting the rent, but they are more likely to offer a month free or the like because cutting the rent might violate the terms of their property loan.
Because more and more rental properties are owned by private equity. Like Ticketmaster they know how to squeeze every last cent out of the market. They also have deeper pockets to wait out vacancies than individual landlords do.
It's probably a temporary blip, and next quarter it'll correct.
The answers are collusion and the change towards corporate ownership. Small landlords usually have to optimize for cash flow but large ones only look at profit.
Oh, also!
33% of CPI is housing/rent cost. So by adjusting rent for inflation you're artificially understating the rise in rent. This chart understates the increase in rent by perhaps as much as $100, or 5% of the ~$1850 rent at the start of the chart.