Housing Glut Pushes Rental Inflation to Record Lows


By Dean Baker

For Immediate Release: August 14, 2009
Contact: Dan Beeton, (202) 239-1460

"The glut of hotel rooms pushed prices down 8.9 percent over the last year."

The overall CPI was unchanged in July while the core index rose by 0.1 percent. Over the last three months the overall index has increased at a 3.4 percent annual rate, driven by sharply higher energy prices in June. It is down by 2.1 percent over the last year. The core index has increased at a 1.7 percent annual rate over the last quarter, virtually the same as its 1.5 percent rate of increase over the last year.

One of the main factors keeping inflation in check is the unprecedented glut in housing. The overall vacancy rate was at a record level in the second quarter, with a sharp increase in rental vacancies more than offsetting a modest decline in the vacancy rate for ownership units. This glut is putting downward pressure on rents.

Both the rent proper and the owners’ equivalent rent (OER) components of the CPI were unchanged in July. Over the last quarter, the rent proper component has risen at just a 0.6 percent annual rate, while the OER component has risen at a 0.7 percent annual rate. Both are the lowest rates since these series have been kept. These components together account for more than 30 percent of the overall CPI and almost 40 percent of the core index. They will dampen any inflationary pressures that develop elsewhere for the foreseeable future.