Record rise in U.S. rents

https://www.bloomberg.com/news/articles/2021-08-18/housing-hunt-turns-to-desperation-with-record-rise-in-u-s-rents

by paulpauper • 5 years ago

126 114 5 years ago

vanattab• 5 years ago

Who would have thought that banning evictions for 2 years could raise rents?

twelve402• 5 years ago

There are probably bigger factors at play, but yes, renting out to anyone even remotely evictable becomes very unattractive.

sparrish• 5 years ago

Risk increase == cost increase.

missedthecue2• 5 years ago

thats how it works in essentially every market. Think about 18 year old drivers compared to 45 year old drivers when shopping for insurance. Why the difference in quotes?

sooheon12• 5 years ago

This is unsurprising. Take a step back and squint enough and you can see any wide-scale fiscal stimulus will be absorbed by land rent. This is the inverse of the Georgist observation that "all taxes come out of rent." All stimulus is absorbed by rent.

Winston Churchill on the topic: http://www.andywightman.com/docs/churchill.pdf

Some years ago in London there was a toll bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings offended the public conscience, and agitation was set on foot, municipal authorities were roused, and at the cost of the taxpayers, the bridge was freed and the toll removed. All those people who used the bridge were saved sixpence a week, but within a very short time rents on the south side of the river were found to have risen about sixpence a week, or the amount of the toll which had been remitted!
And a friend of mine was telling me the other day that, in the parish of Southwark, about 350 pounds a year was given away in doles of bread by charitable people in connection with one of the churches. As a consequence of this charity, the competition for small houses and single-room tenements is so great that rents are considerably higher in the parish!
All goes back to the land, and the land owner is able to absorb to himself a share of almost every public and every private benefit

tablespoon2• 5 years ago

This is unsurprising. Take a step back and squint enough and you can see any wide-scale fiscal stimulus will be absorbed by land rent. This is the inverse of the Georgist observation that "all taxes come out of rent." All stimulus is absorbed by rent.

So fiscal stimulus should be paired with some kind of rent control/regulation, then?

R0b0t12• 5 years ago

Multiple options:

1. Stimulus given faster than it can be absorbed into rents.

2. Progressive taxes on dwellings that are not primary residence.

3. Decrease the cost of new housing.

Of those, I think the last is the most realistic. It is the only one that does not lead to a housing shortage.

sooheon12• 5 years ago

Regulation yes, rent control no.

Google "deadweight loss price ceiling rent control" to see the detrimental economic effects of that policy. Once you understand that, check out the deadweight loss graph of a land value tax: https://en.wikipedia.org/wiki/Land_value_tax#Efficiency

The type of regulation we need is a tax on the pure unimproved value of land sites (excluding buildings, factories, farms etc.).

George:

When all rent is taken by taxation for the needs of the community, then will the equality ordained by Nature be attained. No citizen will have an advantage over any other citizen save as is given by his industry, skill, and intelligence; and each will obtain what he fairly earns. Then, but not till then, will labor get its full reward, and capital its natural return.

Applejinx• 5 years ago

Or, turn Mao loose on 'em :)

It is possible that landlords inherently run amok until enough of them are literally killed, and then they dial it back until they forget.

andrekandre• 5 years ago

  > So fiscal stimulus should be paired with some kind of rent control/regulation, then?

(i am not an economist, nor the op) but i have heard that argued in some left economic circles... same in the case of ubi i might add...

ars• 5 years ago

So fiscal stimulus should be paired with some kind of rent control/regulation, then?

I helped someone find an apartment in a rent control area - instead of higher rents you need to pay 4 months "brokerage fee" to make up for the lower rent. (If you don't want to pay, demand is so high someone else will.)

Rent control doesn't work, it makes things worse.

The correct solution is more supply. You can't fix high demand any other way.

kapuasuite• 5 years ago

We would be better off with taxing the unimproved value of the land (possibly until the market price of the land itself is $0) and rolling back the barriers to building new housing. That would result in cheaper, more plentiful and higher quality housing.

WalterBright6• 5 years ago

rent control/regulation

No government, ever, has managed to repeal the law of supply & demand. Not in 4000 years of trying.

Even in communist countries, where housing is "free", it applies. It's just that the cost is in terms of something other than money, often a network of favors. The same goes on how military base housing is distributed.

ransom1538• 5 years ago

Rent control = higher rent. Every. Time.

salawat5• 5 years ago

Let me reframe the economy for you with an analogy.

Imagine wealth as a fluid. When it's in your account, it resides in a bulb. Connected to these bulbs are pipes connecting you to each person or business's bulb you transact with. Each transaction is facilitated by applying vacuum to transfer a small amount of fluid from bulb to bulb.

In this thing, you have entities that have many more or much larger bulbs than others, with more powerful vacuums that increase in size with the amount of capital they have at their disposal.

Every time you add a bunch of fluid to the system for everyone, you still have all the same networks for extraction in place, and no ability to prevent those connections from just extracting more.

Rent, in particular, is special. Realistically speaking, the pipe that extracts rent to your landlord is not just a transaction facilitator, but is an important mechanism for ensuring that your landlord's wealth relative to the rest of the system is maintained. So in a way, the amount getting extracted will always scale once your landlord is made aware of a global infusion of working fluid to everyone, otherwise, the "value" of their real estate is "diminished" in light of the global infusion.

Real estate as financial instrument is weird like that. Unfortunately, attempts to control that reactive rent adjustment are fraught with side-effects, because when your entire basis for free market economics is that greed and wealth accumulation (considered axiomatic human vices) can be put to productive use by leaving things alone, as evidenced by any attempt to do otherwise having undesirable outcomes, see the history of centrally managed economies.

At least that's as far as I've cared to read up on the matter. After a while trying to get to the bottom of it though, you realize once economics abstracts away any complexities around money moving => physical things happening, it might as well be pontificating on the weather for the questionability of measures involved.

This is a sign of me hitting the absolute depth of my understanding and needing to do more digging to potentially get further but not being capable of devoting the time at the moment.

imtringued2• 5 years ago

You're supposed to tax non reproducible assets that are an essential part of daily life. Land is pretty much the number one priority to tax.

dantheman• 5 years ago

Simpler, don't do fiscal stimulus.

onlyrealcuzzo2• 5 years ago

It should be especially unsurprising when you pair this with dramatically reducing inventory at the same time housing demand is at an all-time high.

Almost 1% of renters get evicted per year in normal times. Almost 0.5% of homes get foreclosed in normal times.

^ This makes up a decent percentage of overall new leases / purchases. It's not like 100% of renters move every year.

We have a lot of markets with restricted housing measures that should make it obvious that reducing supply even a little, can cause prices to go up a lot.

You give people the largest transfer of money in history - increasing personal income by the largest margin in decades, lower interest rates dramatically, AND reduce supply - at the same time everyone is going bat-shit insane trying to "WFH" with kids and there's no where else for them to spend money...

I will be surprised if there is not some really bad unintended consequences from this. But I'm far from surprised that prices are going up in the middle of a "recession". There's 30% more M2, personal income is up 10%, and payments are ~15% cheaper due to interest rates. Why should anyone be surprised that rents are up?

Las Vegas had the highest increase in rents. It had the highest unemployment rate. People on unemployment were making > median wage. Why should anyone be surprised rents went up?

hn_throwaway_993• 5 years ago

The issue, though, is that if you look at most causes of significant inflation, while people like to blame "money printing", it is actually almost always a big supply shock that is the root cause.

With rental housing, there are 2 major supply shocks:

1. Much new housing was put on hold during the pandemic.

2. Critically, the eviction ban over the past 18 months has absolutely killed many small time landlords. Any prospective small-time landlord would certainly think twice about getting into the business now, and many existing small-time landlords are doing everything they can get out. It doesn't help that landlords are basically demonized by a large section of the political class. The end result is this: https://www.reuters.com/business/finance/selling-out-america...

So, at the end of it, it comes down to basic supply-and-demand, and the supply side got crushed.

xxpor• 5 years ago

I don't see why small landlords are relevant to a supply shock here. If supply has been effectively destroyed by people not paying rent but also not being evicted, that should affect everyone right? In other words, it'd only matter if the bottleneck is the amount of capital buying houses to rent coming from small landlords. We all know that's not the case though, the bottleneck is the actual supply of housing.

ldoughty• 5 years ago

The problem actually goes much further back than the pandemic... The housing bubble/crises lead to a massive supply of homes being foreclosed on and purchased by wealthier groups. It also lead to a large exodus of home building professionals as the demand dried up. This resulted in the US building 500,000+ fewer homes per year than the typical demand of the growing population normally demands. The US is now > 7,000,000+ homes behind were we should have been at this point, which means home prices skyrocket making them unavailable to entry level workers. On top of this, it's a common strategy among the wealthy to but a 2nd, 3rd, or more homes, which they rent to rent out at their mortgage rate or higher because the system allows it... So someone who can't get a $1200/month mortgage (for an example) now has a $1200 rent paid to someone for their second home... Though generally they pair up with others or other couples to live together and afford the rent...

This also ignores the trend of businesses engaging in the activity.. buying homes in mass for rental properties instead of the typical apartment/townhouse apartment developments.

UncleMeat2• 5 years ago

. Critically, the eviction ban over the past 18 months has absolutely killed many small time landlords. Any prospective small-time landlord would certainly think twice about getting into the business now, and many existing small-time landlords are doing everything they can get out. It doesn't help that landlords are basically demonized by a large section of the political class.

The end result does not have to be what you mention. We can enact policy to ensure that housing is available to the masses. I don't personally spill many tears over the landlords who lost money. For years, every time people have asked "why can the landlords extract rent", they respond with "the landlords take on the risk". Okay. So this is the risk coming back around. There was never a guarantee that landlords would always make money, nor should there have been.

ZoomerCretin• 5 years ago

This is a very reductionist look at rents. There are more factors at play, the most important of which is the vacancy rate.

https://smcorridornews.com/steady-as-she-goes-texas-apartmen...

San Francisco: https://twitter.com/AlecStapp/status/1331832907003015168

Blackstone: "We believe we will continue to experience below-average levels of new housing supply in our markets which will support future rental rate growth and home price appreciation." https://twitter.com/AlexFischCC/status/1402770234730160132

Does putting more money into people's pockets make rents increase? All else equal, this does occur in the short-term. In the long-term, housing developers want to build more housing to get a cut, which increases the supply of housing and slows rent growth. This hasn't been happening because of segregation-era zoning laws which outlaws denser housing in areas where they are needed.

sooheon12• 5 years ago

Absolutely. Outdated zoning laws are public enemy #2 for livable cities, just a hair after outdated tax laws. The root of both issues is misalignment of incentives.

Supermancho• 5 years ago

This is a very reductionist look at rents.

The fact that there is a belief "the invisible hand" will lower it back down, is separate from the increase due to the general welfare (stimulus). Availability/a market supply increase, is another factor for pricing, not part of the same change. Less so, since it simultaneously exists only in the mythical future.

All goes back to the land, and the land owner is able to absorb to himself a share of almost every public and every private benefit

Seems like an accurate look to me.

irrational2• 5 years ago

This is one of the benefits of owning (or having a mortgage) since your monthly housing costs are fixed, so your stimulus doesn’t go to rent.

thrower1232• 5 years ago

In most jurisdictions, your property taxes and insurance costs always go up year-over-year.

Once in a great while, you might get a reduction, but it's really rare

balozi• 5 years ago

Is this increase really caused by demand-side pressures or simply that property owners know they can charge more since tenants have more disposable coin in their pockets?

thrower1232• 5 years ago

Valuation have risen an absurd amount in the past two years. When property tax assessments catch up, landlords might be looking at 15-20% higher operating costs, and that flows through to rents.

Not to mention property insurance rates have jacked up mysteriously in the past year.

vladgur• 5 years ago

Not in CA with prop 13

WalterBright6• 5 years ago

Not to mention property insurance rates have jacked up mysteriously in the past year.

Not that mysterious. The cost of home repairs has increased substantially in the last year, due to supply chain disruptions. Lumber is a big one.

My hot water heater failed last week. It cost more than double to replace it from what I had paid to install the previous one.

programmertote• 5 years ago

I can confirm about the rising property insurance rates. My Travelers home owners' insurance (for my two bed-room apartment) has risen up by ~11% from last year. In the past years, it was just about 3-4% YoY increase. When I asked them, they answered that part of the increase is to protect for the inflation. Inflation hurts everyone especially for people who will not see a lot of increase in their paychecks. It also seems like a self-fulfilling prophecy and I personally believe it'll be sticky (meaning, YoY inflation much higher than 2% will be with us for quite a while).

xx511134bz3• 5 years ago

Neal Bawa explained that rent prices follow housing prices with about an 18 month lag. There is a set of would-be homeowners, richer than renters, who have been since been priced out of the home buying market, so they outspend the previous set of renters, driving prices up.

REI074: Data-Driven Real Estate Investing W/ Neal Bawa https://www.youtube.com/watch?v=tzeTx1KE600

A major takeaway from this podcast is that 4-plexes are the best economic investment because they are liquid, ie. 5-plexes incur more scrutiny from the bank, the downside of multiplex is you may need a property manager, so after scraping zillow and doing some machine learning to deduce the most profitable market, Mr. Bawa builds seas of 4-plexes with all administered by a single property management office.

clomond• 5 years ago

That’s a theory, utilizing reversion to the mean as it’s basis but it is not a rule. With different market conditions, housing prices could also correct for rental prices.

Meaning if rents stay down after decoupling from an increase in housing stock value, the house prices could adjust down in the event there is over-supply and the market at the margins decides to rent rather than buy because it’s cheaper.

cronix2• 5 years ago

Neal Bawa explained that rent prices follow housing prices with about an 18 month lag.

I'm assuming that has a lot to do with leases and rental contracts? If you have a 2 year lease I can't raise your rent until it expires even if the property increases in value 10x during that time.

xx511134bz3• 5 years ago

This came up. He is no longer renewing 1-year leases, he expects to increase rent twice in 2022, so he is moving to a six-month lease. He also said 2022 will feature the largest rent increase in American history.

MeinBlutIstBlau4• 5 years ago

I worked in commercial lending for a little while and all assessments you've made on commercial properties is wrong. We (as do most) financials underwrite the business, not the property. If the business has several years of a solid, stable income as well as can afford it, we don't care. We just want a low risk borrower whom we just set and forgot until balloon renewal. Obviously we also don't just give out a loan to anyone with money either. There is no good investment in real estate unless youve got money to pump into them continually until your rents far outweigh even your personal expenses.

xx511134bz3• 5 years ago

I just quoted the podcast which I linked. This isn't about commercial, its about residential.

paulpauper• 5 years ago

Not a surprise at all. Salaries for nice city jobs, such as tech, legal, banking,and finance jobs, tend to exceed inflation,so its reasonable to assume rents will too. Rents in major metro areas such as SF have been expensive forever. No reason to expect this to change. I knew that the narrative/media hype about Covid depressing rents would be short-lived and rent prices would come roaring back with a vengeance as soon as the economy and stock market rebounded.

post_break• 5 years ago

I forget where I was reading it but people were leaning on the no evictions policy hard. Buying boats and other fun toys while skipping rent.

MeinBlutIstBlau4• 5 years ago

Of course many were. The US govt really did a dirty to many landlords. They tried controlling people in the most ineffective way possible that will have worse effects on lower income people than had they just been evicted.

m0llusk2• 5 years ago

Rents in San Francisco are still way down which makes this analysis look really coarse to the point of being sloppy.

throwdecro2• 5 years ago

San Francisco is neither large enough nor representative enough to be that meaningful in a national context. SF is a small enclave of ludicrous pricing, because of the huge amount of investment capital flowing into a fairly small city. It still has a lot of room to move down even if everything else is going up.

m0llusk2• 5 years ago

The SF Bay Area is roughly 8.5 million of the most productive participants in the US economy.

neonate• 5 years ago

https://archive.is/VGtt4

https://web.archive.org/web/20210820150151/https://www.bloom...

WalterBright6• 5 years ago

The cost of the eviction moratoriums is inevitably going to be borne by the renters.

heurisko2• 5 years ago

If there was scope to increase rents, then why were they not increased already?

WalterBright6• 5 years ago

Increasing the landlord's costs always causes rent increases. It's basic supply and demand. If demand is the same, but supply shrinks because of higher costs, then the equilibrium price rises.

teddyh• 5 years ago

I’m guessing that it’s because it’s harder to move, let alone find a new place to live, during a pandemic and lockdown. Landlords suddenly found themselves having a customer base which are all isolated and locked down at home.

scumcity• 5 years ago

Would be cool if the US economy could be driven by supply and demand. Housing is needed - more houses are built. Not sure why that can't be the case. This isn't Tokyo.

cronix2• 5 years ago

As a fun exercise, try to get a house built in any metro area with a pop > 750k and see what you have to go through and how expensive and time consuming it is to jump through all of the hoops. You will find the answer to your question.

jancsika• 5 years ago

Housing is needed - more houses are built. Not sure why that can't be the case.

You arrive in a room with no inspectors. To the North is, "Of course we'd still have inspectors." To the East is, "Privatize all the inspectors." To the West is, "Let's build a disruptive app to facilitate illegal barn raising."

To the South is, "Let me revise my initial statement..."

missedthecue2• 5 years ago

In most cities and towns across the US, you have to retain half the state bar association simply to get the permits to do the environmental and traffic pattern studies that must be submitted to the approval council before you can get permission to build.

MeinBlutIstBlau4• 5 years ago

because god forbid the average person lives in a 1200sq ft home.

kamaal• 5 years ago

>Housing is needed - more houses are built. Not sure why that can't be the case.

Because every unit increase in a circle's radius r, causes the area to go up by r*r. These ever increasing concentric circles, cause infrastructure demands and spending to keep going up by factors of square.

Every unit increase in a Pizza's radius demands more and more cheese. To a point you will realize you get more Pizza when you order a very large Pizza than ordering 2 small Pizza's.

At some point you get two cities for Cheap than expanding an existing one.

You just can't keep building additional housing this way. In Bay Area where people stay as far as San Ramon and travel to work, you realise the taxes are just crazy high.

iammisc• 5 years ago

This is due to the moratoria.

boomboomsubban• 5 years ago

They don't seem to provide the data, but how much has rent risen in other recent years? Could some of this just be landlords postponing the usual 2020 rise due to the lockdown?

Similarly, I would guess 2020 saw less construction then an average year. Wouldn't that alone cause a short term spike?

drewg123• 5 years ago

One aspect which I have not seen mentioned is private landlords are taking advantage of the current inflated prices & general sellers market. They want to take profits and are selling units out from renters. They typically want the unit empty to sell, and so they are not renewing leases.

My landlord did this. In July, I learned that he had decided he wanted to sell my townhouse, and wanted me out. I was fortunate enough to find a place to buy that reduced my commute to my son's school, but it was pretty nerve wracking.

sofixa2• 5 years ago

My landlord did this. In July, I learned that he had decided he wanted to sell my townhouse, and wanted me out. I was fortunate enough to find a place to buy that reduced my commute to my son's school, but it was pretty nerve wracking

That's why in France it's illegal to do that. If you have a lease, and the landlord wants to sell, they have to propose to you first, and then last ( at the same price as with the potential buyer); the new landlord can't evict you ( your lease is sold alongside the "land"). And if they want to not renew your lease, you have to be notified well in advance.

GaryTang• 5 years ago

France sounds like a real shthole.

RickJWagner• 5 years ago

Inflation will:

- Help absorb record-high PE ratios in the market

- Allow people with heavy investments in equities to continue to prosper

Will also:

- Let the government pay off massive debts with smaller dollars (later)

- Badly hurt the poor and especially those on fixed incomes

Personally, I don't like inflationary times.

anonuser123456• 5 years ago

It may not help much to pay off debt. The government borrows a lot in short term markets. If rates go up to account for inflation, that rolling debt will get rolled into higher interest rate bonds.

frankbreetz• 5 years ago

Poor generally have a lot debt and with inflation debt gets smaller.

SevenSigs• 5 years ago

Annecdotal but my rent didnt go up in 2021... my ex's did though... both Georgia.

Record rise in U.S. rents

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