CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press There is No Shortage of Rental Housing and Rents Are Not Rising Rapidly

There is No Shortage of Rental Housing and Rents Are Not Rising Rapidly

Saturday, 25 February 2012 15:33

The NYT told readers that a shortage of rental housing is driving up rents. This is wrong and wrong.

The NYT story is that the flood of foreclosures has forced people out of their homes and led them to look for rental housing. While this is true to some extent (homeownership rates have fallen), former homeowners would have discovered that there was a glut of rental housing.

Furthermore, ownership units can become rentals and vice-versa. This is true even for multi-family units, but 30 percent of rental properties nationwide are single family homes. These obviously can be converted very quickly to ownership units or more have been ownership units in the recent past.

So, if we look at the data on rental vacancy rates, we find that in the fourth quarter of 2011 the vacancy rate was 9.4 percent. This is down from the peak of 11.1 percent in the third quarter of 2009, but it is higher than any rate recorded in the 50s, 60s, 70s, 80s, or 90s.

Turning to rents, the best measure to use is the Bureau Labor Statistics (BLS) measure for owner occupied housing. This measure will have some inertia, since it included all units, not just units that have been on the market. (There is more variation in price on units that are placed on the market.) However, it is more desirable than other measures because the BLS controls for quality changes and also because it only includes the rental value of the unit itself. It pulls out utilities which can have a large effect on rents, if they are included in a lease.

Year over Year Change in Owner Equivalent Rent

rentSource: Bureau of Labor Statistics.

As can be seen, rents are increasing somewhat more rapidly than they were at the trough of the downturn, but they are still just rising pretty much in step with the rate of inflation. In fact the current rate of increase is lower than the rate of increase at any point in the decade prior to the beginning of the recession. While there may be some cities where rents are rising especially rapidly, or some narrow markets within cities, clearly this is not generally the case.

Comments (8)Add Comment
written by denim, February 26, 2012 6:00
So is there collusion, price fixing, or other illegal business practices causing the unexplained deviation from inflation in "some market"? Or is it just the variation in CPI among the markets in various locales?
written by skeptonomist, February 26, 2012 8:48
"single family homes...can be converted very quickly to ownership units". How does this work? Wouldn't such conversion put the owners in the rental market?
There is No Shortage of Rental Housing and Rents Are Not Rising Rapidly
written by NYCRenter, February 26, 2012 9:43
In a more perfect market, these indicators would support your claim. The rental market in New York at least is far from perfect. For instance, rents are artifically constant. When there is a relative increase of apartments available that would create a drop in the market, tax consequences allow owners to do better leaving a unit unrented rather than dropping the price. This is but one example of many that protect rent prices from market factors. Particularly onerous are provisions for capital investments that allow owners to double rents even for rent stabilized units.

Second, the Times did get it wrong about the foreclosures, but only by a little. There are more would be renters (increased demand) but for a different reason. It is more difficult to finance anything. Those who in the market that is set up to favor purchasers cannot or will not buy. The correlation between rental prices hovering above mortgage rates tends to lend some validation to this explanation.

And, first hand in a statistically insignificant look at the housing market during the time from 2006 through 2011, having looked for apartments, the 9% you site might be a bit deceptive. Breaking the 9% by rental price will most likely separate easily into a very small percentage of rentals affordable by median income renters and much higher for so called "luxury" rentals. My experience was it was easy to find an apartment for an income of over $150,000, but a distinct lack of offerings at the medium income and below even in areas like Inwood and the Bronx with relatively higher crime and drugs and poorer schools.

written by jcb, February 26, 2012 11:42
The graph you provide describes the rate of change of rental prices. At no point on that graph have rental prices decreased -- much less, by 30% net like housing prices. Furthermore, unless you disaggregate the figures by city and region they don't have much explanatory value.

I suspect that most of your readers (e.g. me, NYCRenter) live in cities on either coast with low vacancy rates and rents still close to pre-2007 highs.
written by MacCruiskeen, February 26, 2012 3:46
Methinks you doth protest too much. The Times did not say rents were rising rapidly. "Rapidly" does not occur in the article. In fact, the article says "Unlike home prices, rents have been rising, up 2.4 percent in January from a year earlier" which is actually entirely in agreement with your own statement that prices are "still just rising pretty much in step with the rate of inflation." The Times also did not say there was a shortage of apartments. It said the vacancy rate was decreasing. You use a different measure, but that measure also shows the vacancy rate decreasing. The Times also notes that in areas hard hit with foreclosures, there is indeed a glut of housing. I know that where I live, in Cambridge, there is not a glut. Apartment vacancy is quite tight here.
written by PeonInChief, February 26, 2012 7:00
The shortage of housing is in San Francisco, which always has a shortage of housing, and in housing for low-income renters, and that exists even in the weakest markets. Units for low-income households aren't produced by the private market, and the government, which was never very interested in affordable housing, lost interest entirely during the Nixon Administration.
Rent Increases
written by wsobchak, February 27, 2012 9:22
I own some smaller single family houses used for rent in Texas.

They're fairly new, in good shape, and I think my rates are very fair, and the vacancy rate is very low.

One thing that has impacted me was the local property taxes have increased as communities deal with a swath of tax delinquencies and different tax projections from those in 2007.

In fact the property taxes have increased to ridiculous levels since 2009 - on a few properties the rate has jumped by 50%.

I want to pay my fair share of local taxes, but come on! I have seriously thought about increasing the rent 5-10% to address this but I don't really think the local market will allow me unless I'm OK with longer vacancies.
Coming from NAR, NYTs' echo chamber
written by Robert Oak, February 28, 2012 11:10
The NAR tried to imply somehow rents are rising. Lawrence Yun. Great call out Dean Baker! We just graphed up 10 years of PHSI data and this month was just not this spectacular blow out most of the press lead people to believe.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.