And it’s not going away any time soon, either. NBC News offers this fresh look at the rental environment in Austin, Texas, a real-estate market that could be the hottest in the country. That new mobility, uncorked after nearly two years of pandemic immobility, as rents skyrocketing here.
But it’s not just Texas, either. Rents are spiking in most places in the country, wiping out wage gains for working-class Americans but hitting fixed-income renters hardest:
Rent jumped more than 30% in many major cities and Americans are feeling the pinch. @MauraBarrettNBC spoke to one woman whose monthly rent went up $600 about how it’s impacting her:
“It’s just a shame that they don’t do anything to work with people that have been here so long.” pic.twitter.com/np0PMzHJ44
— Hallie Jackson NOW (@HallieOnNBC) February 16, 2022
Rents have gone up 30% in the past year in Austin and will go up another 10% in the next year. How does that square up with the 5-6% wage increase about which Joe Biden brags? And that’s for people who work for a living, let’s not forget. Those living on fixed incomes such as retirement, Social Security, and disability have no ability to scale up to meet this form of inflation — or any others, for that matter.
Will rent inflation continue? Financial Times columnist Robert Armstrong looks at the data and predicts it will not only continue, but that it may be worse than it looks:
The Zillow and Apartment List data may understate how warm rent inflation it is. RealPage, which makes software for property companies, has data on actual closed leases. This is better, because rental unit occupancy rates are historically high right now, so renters often pay over the ask price to secure an apartment, as RealPage economist Jay Parsons pointed out to me. The RealPage closed leases data show a 0.6 per cent month over month increase for new renters in January, very high for winter, and higher than the Zillow and Apartment List figures.
Another eye opening set of data comes from Invitation Homes, which is a real estate company that rents more than 70,000 single-family homes across the US. Its fourth-quarter numbers include a 17 per cent rise in rents on new leases, and a staggering 9 per cent on renewals.
The San Francisco Federal Reserve looked at the same data, and sees rent inflation remaining high for the next two years. And that means that pressure will increase on the Fed to intervene, given the impact that will have on its inflation target:
Rising rents account for a significant portion of recent inflation. Estimates of how rent inflation typically responds to two leading indicators—current asking rents and current house prices—can help forecast the path of overall inflation for the next two years. This method predicts that higher rent inflation could add about 0.5 percentage point to personal consumption expenditures price inflation for both 2022 and 2023. These potential additions are important in light of the Federal Reserve’s 2% inflation target. …
In this Economic Letter, we develop an empirical model to predict future rent inflation using data on current asking rents and current house prices in 15 metropolitan statistical areas (MSAs). Our panel model predicts that future rent inflation could increase by about 3.4 percentage points (pp) in both 2022 and 2023 relative to the pre-pandemic five-year average. This prediction translates into an additional 1.1pp increase in overall CPI inflation for both 2022 and 2023. In terms of overall PCE inflation, the measure used by the Federal Reserve to assess price stability, our prediction translates into an additional 0.5pp increase for both 2022 and 2023.
All of these technical issues are important for policy, of course, but this will impact electoral politics as well — right where Democrats can least afford it. Rent inflation hits hardest in urban cores where their political power is now centered. Typical policy responses in such cities will likely exacerbate it, especially rent control, which results in downward pressure on new housing units. (In fact, we just saw this effect in St. Paul, MN.) That might slow down rate increases, but it will make it harder for people to find places to live in such cities as well. All of this will combine to leave heavily Democratic neighborhoods having no one to blame but Democrats in their local city halls and in Washington for their plight.
Small wonder, then, that Democrats have become desperate for some sort of response to record inflation ahead of the midterms. A gas-tax holiday ain’t gonna cut it, though, and neither will anti-trust legislation.