Friday, April 29, 2016

Rents are going through the roof!

Rent increases appear to be out of control.  Median asking rent rose from $850 to $870 in the first quarter of 2016, and is up $71 from $799 YoY, an increase of 9%!  This sets yet another record for rents.  

Here is the graph of nominal median asking rents by the Census Bureau:

Here is an updated look at real. inflation adjusted median asking rents, which also set a new record:

Year Median
Asking Rent
Usual weekly
Rent as %
of earnings

2004 59962995
2013 73477894
2014  76279196
2016  Q1870823106

Vacancies remain extremely tight: 

Despite the ongoing stratospheric increase in rents, not enough multi-unit housing is being built.  When the large Boomer generation hit adulthood 50 years ago, note how multi-unit construction quickly shot up to 1,000,000 a year, and remained above 400,000 almost continuously for 20 years thereafter, until the last Boomer hit adulthood:

Now here is the comparable look for the similarly large Millennial generation:

The increase has only been to the 400,000 level, and has been stuck in that neighborhood for 2years.

Renters are typically from the lowest 2 quintiles of the income distribution.  The second lowest quintile has had the poorest record of income changes since the recession{

and that hasn't changed as of the latest update from the Consumer Expenditure Survey released two weeks ago:

It has increasingly occurred to me that one reason we haven't had a bigger kick of consumer spending from lower gas prices, is that it is all getting sucked up by rent increases.  

That rents have been going through the roof is one of the most underreported important stories in the economy.

ADDENDUM:  Bill McBride says "there are serious questions about the accuracy of this survey. .... The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend." 

Of course, the rate of increase in rents is exactly the trend.  But for completeness' sake, let's compare Median Asking Rent with other similar measures.

The only other contemporaneous measure is "rent of primary residence"  from the CPI report.  It is a mean, not a median:

It has been rising at over 3% a year for the last 2 years -- and MEMO TO THE FED! Housing is the only important sector that is showing any actual inflation.  If there is a shortage of multi-unit housing, exactly how is raising rates going to help???

There are two other median measures in addition to median asking rent from the HVS :  the American Community Survey (as noted by McBride) and the Consumer Expenditure Survey.  Unfortunately the former has only been reported through 2014, and the latter through mid-2015.  The below table shows their YoY increases, compared with median asking rent:

SURVEY: ACS        CES      HVS
2009 --------  (817)    -------     ------  (708)
2010  +2.9%  (841)   +1.4%   +2.6% (698)
2011  +3.6% (871)    +4.4%   -0.6%  (694)
2012  +2.1% (889)    +5.2%  +3.3% (717)
2013. +1.7% (904)    +4.3%  +2.4% (734)
2014  +1.8% (920)    +9.2%  +3.8% (762) 
2015  ----      -----     +4.3%* +6.7% (813)
*June 2014-June 2015 all shelter

The CES through mid-2015 actually shows a bigger post-recession surge in rents than the measure of median asking rents.  The ACS is more tame, but ends in 2014.  When you also consider rents as measured by the CPI, it is pretty clear that rents are increasing faster than wages.