As rents rise because of increased demand for rental housing and low levels of new construction, you may start to see media stories about how these escalating rents are burdening already struggling households. Soon, the tone of those stories will likely shift to imply that landlords are taking advantage of poor, vulnerable renters. But are high rents really the problem? There are many reasons to think not. The truth is that the real culprit for cost burdens faced by renters is not rents, which in many markets are still below their pre-recession levels. Other factors, not the least of which is income, which has been stagnant since before the latest downturn, are likely to blame.
The Inflation Factor
Consider rental data trends. The best source of these is the consumer price index (CPI), which includes an estimate of “rent of primary residence.” The method used to collect the data causes estimates of rent inflation to lag actual rent changes—so the CPI shows the peak rental gain occurring in the fourth quarter of 2001, about a year later than most apartment rents actually peaked. This lag also mutes the highs and lows.
By this measure, that peak year-over-year rent increase was only 4.7 percent between 1990 and 2011, well below the nearly 10 per-cent rent rise indicated by other estimates. Also, the recent low was 0 percent, when all apartment data sets showed real rent drops as a result of the Great Recession.
Not much has changed, by this measure. The most recent data (from second-quarter 2011) show a rise of just 1.4 percent from a year earlier (and slightly less than that compared with the first quarter). The lack of any “surging rent growth” is even clearer when rents are adjusted for overall inflation. Real (inflation-adjusted) rents are down by almost 2 percent from mid-year 2010. What’s more, the longer-term picture also shows muted rents. While nominal (unadjusted) rents have increased an average of 3 percent annually from 1990 to 2011, real rents are up just 0.2 percent annually in that same time period.