Rising rent prices are keeping inflation high

“Housing keeps getting more expensive — and even though new data shows that overall price increases are slowing down, surging rent prices underscore how difficult it could be to bring inflation under control.

Prices were 8.3 percent higher in August compared to a year before, according to the Consumer Price Index report released on Tuesday. That’s slower than it was the month before, when inflation climbed 8.5 percent, but it’s still uncomfortably high for consumers and policymakers. Prices picked up 0.1 percent from July to August.

One of the biggest drivers of inflation has been higher rent prices. According to data from Zillow, the typical US monthly rent was $2,090 in August, up 12.3 percent from a year before. That is much higher than it was before the pandemic — in February 2020, the nation’s average rent was $1,660.

According to the CPI report, shelter prices — which include rent, lodging away from home, and household insurance — rose 0.7 percent in August from the month before, the biggest monthly jump since 1991. The rent index by itself also increased 0.7 percent from July, and was up 6.7 percent from a year ago.”

“Sarah House, a senior economist at Wells Fargo, said that rent prices could be decelerating as supply improves and landlords start to “get a little bit more realistic” about how much they can charge before they see more pushback from renters. But she said that rent prices in the CPI measure tend to move slowly, so it could take time for the government data to reflect the price deceleration that private-sector data may already be picking up.

That’s largely because the government data also takes into account existing rentals, while many private data sources only examine prices for new leases to capture current market conditions. Since rents typically change when leases expire, which tends to happen annually, this can lead to a lag in government data.

“I think we’re close to beginning to see a slowdown in the monthly rate of the price gain,” House said. “But it’s still likely to remain pretty strong in a historical sense for some time.”

Omair Sharif, the founder and president of research firm Inflation Insights, also said rent price gains could slow in the coming months as the CPI measure eventually catches up to private-sector data.

“Around the end of this year into the first quarter of next year, we should probably start to see the CPI data start to mimic more closely what we’re seeing in terms of that deceleration,” Sharif said.

A deceleration in rental price growth could help bring down overall inflation closer to the Fed’s goal of 2 percent annual inflation. Although prices for rent, food, and medical care climbed in August, prices for gasoline, used cars, and airline fares dropped.

Still, mortgage rates have skyrocketed to their highest levels since 2008 and home prices remain much higher than they were before the pandemic. That has made it harder for people to afford monthly payments, leading to some potential homebuyers being priced out of the market. If people continue renting rather than buying, that could drive up demand for rentals and keep prices high.”

What John Oliver Gets Wrong About Rising Rents

“Rising rents are a very real phenomenon driven by a mismatch in many cities between the number of homes that are being built and the number of people who would like to live in them. The wedge between supply and demand is created by cities’ elaborate zoning codes, price regulations, and permitting processes that all combine to reduce housing availability and raise prices.

It should be no surprise that rents are high when a majority of land in major cities is off-limits to new development, it takes years to approve whatever new housing is allowed, and some of those new units have to be given away at below-market rates.

The details of these restrictions are a wonky topic, to be sure. One expects only so much depth or insight from a comedic explanation of it all. But even allowing for that handicap, Oliver’s treatment of the housing supply issue proves to be superficial, brief, and confused.

Oliver either misunderstands or fails to explore the link between government regulation, housing supply, and housing market outcomes. His perfunctory explanation of it serves only as a brief prelude to his attack on the real villains in his story: greedy private landlords with carte blanche to raise rents and evict tenants.

The solutions he puts forward, therefore, have little to do with eliminating needless, harmful regulatory barriers to new supply. Instead, he calls for legally constraining landlords’ ability to raise rents and evict tenants and declaring housing a federally funded, government-provided right.”

“building new housing, even high-end housing, improves affordability for everyone by absorbing the demand of high-income renters, who are no longer bidding up the costs of older, naturally cheaper housing units. A growing body of empirical research shows this is a fact, not a free market fantasy.”

Is the Nation’s Harshest Rent Control Law Unconstitutional, or Just Counterproductive?

“The preliminary results of St. Paul, Minnesota’s, strictest-in-the-nation rent control law have not been good. Developers have fled, while applications for new building permits and property values have both collapsed. Now, a pair of landlords are suing the city, claiming the law is unconstitutional.”

“The ordinance, written by local activists and passed by voters in November 2021, capped rent increases in the city at 3 percent per year, with none of the typical allowances or exemptions for inflation, vacant units, and new construction.
The policy is far stricter than basically every other rent control law in the country. Oregon’s 2019 state rent control law, for instance, allows for property owners to raise rents by 7 percent plus inflation and exempts buildings less than 15 years old from these price caps.

While the St. Paul ordinance did allow landlords to obtain exemptions to that 3 percent cap if it threatens their ability to earn a “reasonable return” on their investment, what would count as a reasonable return and how to secure an exemption were left up to the city to hash out. St. Paul came out with proposed rules for implementing the ordinance, including the exemption process, in early April 2022. These were finalized later that month, and everything went into effect on May 1. The final rules allow landlords to “self-certify” exemptions if they’re trying to raise the rent by no more than 8 percent, which involves filling out a short form and submitting it to the city.

Landlords are also permitted to raise the rent up to 15 percent. Doing so requires vetting from city staff and the completion of a 22-page worksheet that asks the applicant to provide exhaustive detail about changes in their expenses that might justify a rent increase. Because all exemptions can be appealed and subjected to a city audit, even landlords who can self-certify increases of up to 8 percent are encouraged (but not required) to fill out that 22-page worksheet as well.

It’s a daunting prospect for many of St. Paul’s smaller landlords.”

Evictions are life-altering — and preventable

“Nearly 1 million people are evicted in the US each year, mostly for nonpayment of rent. Between 2000 and 2016, according to the Eviction Lab at Princeton University, one in 40 American renter households was evicted, and more than twice that share were threatened with it. The experience of losing one’s home to eviction has been linked to all sorts of adverse consequences, including higher job loss, debt, suicide, and reduced credit access.

Many evicted families are forced to relocate to lower-quality homes in neighborhoods with more crime. Evicted children experience higher food insecurity and lower academic achievement than other low-income kids living in rental housing, partly as a result of having to shuffle between schools and their parents’ declining mental health.”

“Claudia Aiken, a policy researcher at the University of Pennsylvania, has already found clear results from Philadelphia. Receiving emergency rental assistance was associated with a lower likelihood of incurring debt, a lower share of tenants reporting that they worried frequently, and a significant decrease in the amount of rent owed among those behind on payments. Other studies on preliminary impacts in Atlanta and Baltimore have found receiving rental aid is associated with reduced risk of homelessness and lower debt.”

“As states and cities cobbled together their rental assistance programs, policymakers quickly ran into several issues. Landlords weren’t always eager to participate because accepting the money sometimes came with requirements to forgive past penalties, interest, and court costs; or because participating barred landlords from chasing payments for anything outstanding in the months they received aid. Some states capped available rental assistance so low that many landlords saw accepting it as consenting to de facto rent cancellation while they were dealing with their own cash flow problems.

Some programs tried to grease the wheels to induce more participation. A Pennsylvania rental assistance program in place before ERAP launched had a monthly cap of $750, regardless of what rent was owed. But only 44 percent of landlords participated, so Philadelphia policymakers decided to pair state aid with CARES money to offer landlords up to $1,500 per month. This boosted Philadelphia participation to 63 percent.

Still, many landlords just wouldn’t bite. In a national survey of rental assistance programs conducted in spring 2021, 44 percent of program administrators said landlord responsiveness was a challenge. That number rose to 67 percent in summer 2021, and 74 percent in late 2021. As one ERAP administrator explained, “many landlords are not looking to keep unreliable tenants; some refuse to work with us; [and] others are not willing to renew leases.”

Landlord resistance is nothing new in federal housing policy. But to address the issue, Treasury took an unprecedented step. It said that programs must send money directly to tenants when their landlords don’t cooperate, and clarified that programs can even provide direct assistance to tenants before trying to engage the landlord. Not all programs embraced the idea, but many did.”

Eliminating Single-Family Zoning Isn’t the Reason Minneapolis Is a YIMBY Success Story

“Housing production is up, and rents do indeed appear to be falling. But the effects of Minneapolis’ particular means of eliminating single-family-only zoning, and allowing up to triplexes on residential land citywide, have been exceedingly modest.

Newly legal triplexes and duplexes make up a tiny fraction of new homes being built. Other less headline-grabbing reforms appear to be doing the Lord’s work of boosting housing production.”

“Wittenberg credits the city’s elimination of parking minimums—which had typically required one parking spot per housing unit—with facilitating increased construction of smaller apartment buildings.

The city has been chipping away at residential parking minimums since 2009. The Minneapolis 2040 plan eliminated them entirely. (The city has also adopted some rather un-free market parking policies, including parking maximums in some areas and bike parking minimums.)

Data culled by Wittenberg, and shared with Reason, shows that 19 major projects have been approved by Minneapolis’ Planning Commission since parking minimums were eliminated. The median project provided .42 residential parking spaces per unit, with smaller apartment buildings typically including even less parking.

“For site constraint reasons and economic reasons, it would have been hard to park those buildings at one parking space per unit,” he says. “We’re pretty clearly seeing that is making a significant difference.”

In January 2021, Minneapolis also implemented additional parts of the 2040 Minneapolis comprehensive plan that allows for larger, denser apartment buildings in more of the city, particularly along commercial corridors and near public transit stops. That’s also helped facilitate more development, says Wittenberg.

Flisrand, on Twitter, argues that the fight over eliminating single-family-zoning sucked up most of the attention in the Minneapolis 2040 debate, thus paving the way for more impactful policies like parking minimum elimination and commercial corridor upzoning.”

“One also doesn’t want to learn the wrong lesson that eliminating single-family zoning is the only supply increasing reform cities need to adopt.

There’s a certain current of thought on the political left—represented most prominently by Rep. Alexandria Ocasio-Cortez (D–N.Y.)—that supports eliminating single-family zoning in wealthy neighborhoods while also expressing extreme skepticism of denser private, market-rate development elsewhere in the city

But legalizing the latter type of development, at least in Minneapolis’s experience, appears to go a lot farther in actually producing more housing units and holding down rents.

More and more jurisdictions across the country are catching on to the fact that their zoning laws are strangling housing production and driving up housing costs, and moving to make changes.”

Rent Control Is Fashionable Again. It’s Still a Bad Idea.

“Another housing development in St. Paul, Minnesota, is on hold after losing its financing partner this week.

On Monday, the St. Paul Pioneer Press reported that developer Alatus had a previously-committed equity partner renege on its commitment to invest $23 million in a proposed 304-unit project in the city’s Frogtown neighborhood. Two other investors who had proposed preliminary financing terms for the project—in which half the units would be rented out at below-market rates—have also walked away.

The reason? St. Paul’s newly-passed rent control ordinance, which Alatus’ principals say is making their once-eager investors skittish about doing business in the city.”

“It’s a near-universal consensus—held in common by progressive policy wonks, radical free marketeers, and the three most recent presidential administrations—that America’s highest-cost cities are so unaffordable because government zoning regulations prevent enough new housing from being built.

So why are a growing number of politicians, wonks, and pundits suddenly embracing a policy that’s been long maligned for further reducing the supply of housing?

The argument from rent control proponents boils down to the need to create short-term stability for renters. That will then, hopefully, give cities some breathing room to get to work on fixing their pressing supply issues.”

“That study looked at a 1994 San Francisco ballot initiative that expanded preexisting rent controls to cover four-unit apartment buildings constructed prior to 1980, but which exempts four-unit apartments built after 1980.

That created something of a natural experiment on the effects of rent control.

The Stanford study concluded that tenants living in the older, rent-controlled buildings were 10–20 percent more likely to stay at their same address than people living in newer, unregulated buildings. The study also concluded that the expansion of rent control caused a 15 percent decline in the availability of rental housing among affected units.

In short, there’s a clear tradeoff in rent control policies between creating stability for existing tenants and preserving and expanding rental housing supply for new tenants. The goal of politicians, according to some, should be to strike the right balance between the two.”

“We actually have a good, real example of what this balance striking in the real world looks like: San Francisco.

The rent stabilization ordinance that’s been in place in San Francisco since 1979, and which the Stanford study examined, has all the features Demsas would want in a well-designed rent control policy: post-1979 construction is exempt from price controls, landlords can raise rents by the lesser of 60 percent of yearly inflation or 7 percent, and there’s vacancy decontrol.

Some 40 percent of San Francisco’s housing stock is covered by these rules. Another 9 percent is deed-restricted affordable housing, meaning that rents can’t generally consume more than 30 percent of tenants’ pretax earnings.

That leaves only 16 percent of housing stock in the city where rents follow the ebb and flow of market forces. (That was at least the case prior to January 2020, when California’s statewide rent control law went into effect.)

The result is, again, San Francisco; a synonym for housing dysfunction and unaffordability. That obviously makes it a place that’s antagonistically expensive to newcomers. Copious amounts of rent control also haven’t stopped it from ranking first among American cities in some measurements for gentrification and displacement, either.”

“Rent control is always going to disincentivize housing construction, regardless of how tight or loose the zoning code is. Repealing zoning restrictions will allow for more housing. It will also make the supply-killing effects of rent control all the more apparent and relevant.”

“Rent control also could disincentivize renters—who should be natural proponents of new housing construction—from supporting zoning reforms.

If government price controls are keeping your rent stable, you have much less of an incentive to support new market-rate construction. At best, it would just be doing more of the same. At worst, it would be adding more construction noise, more traffic, and, God forbid, more shadows.

Indeed, rent-controlled tenants have an incentive to oppose any rezoning on the grounds that it might make their own rental unit a candidate for redevelopment. They’re at risk of losing the below-market rents they’re currently being charged.”

“if rent control isn’t the answer to short-term housing affordability issues and displacement, what is? I’d argue it’s zoning reform, and, failing that, federalism.

New housing units, even if they’re really expensive housing units, act almost immediately to lower the costs of rent for everyone. That addresses both affordability and displacement in the short-term thanks to the magic of the “moving chain.”

When a new “luxury” apartment comes online (and basically all new construction is high-cost “luxury” housing), it’s often filled by a high-income person who moves from his previous, older apartment building in the city. His now-vacant home is then snapped up by a middle-income person who leaves behind an even older unit that a third, lower-income person can now move into.

Follow this “moving chain” back far enough, and soon enough you see that each new unit of luxury housing is freeing up lots of housing in the lowest-cost, lowest-income neighborhoods in the city. That presumably puts downward pressure on prices and displacement.”

“An August 2021 paper from Finnish researchers looking at moving chains in Helsinki found that for every 100 new market-rate apartments built in the city center, “29 units get created through vacancy in bottom-quintile income zip codes and 60 units in bottom-half income zip codes” within two years.”

“Research by economist Evan Mast on the effects of luxury apartment construction in 12 American cities has also found that new, pricey units open up more housing options for middle- and lower-income neighborhoods.”

“relying on rent control to keep that renter in the same home comes at the expense of new housing supply, which in turn raises rents for everyone else in the city and prevents others from moving there entirely.”

I changed my mind on rent control

“all of these policies share a problem if enacted as the exclusive solution to rising rents. As economists often stress, rent control fails to address the core issue of why housing is so expensive to begin with: lack of supply. In particular, states and cities have a bevy of rules and regulations regarding what kind and size of new homes can be built that overwhelmingly make it illegal or unprofitable to build small single-family homes, multi-family homes, and dense neighborhoods.”

“Rent control should be understood as a remedy for displacement, rather than a solution to the spiraling cost of housing. It’s best as a measure that can help keep current tenants from being displaced from their neighborhoods”

“It’s become abundantly clear that even if states do begin to build more homes, it will take years if not decades to rebalance supply and make housing more affordable, and in the meantime millions of families will continue to suffer. Economists are right to be worried about the ways rent control could worsen the housing crisis, but rent control can work.”

“A well-designed rent control policy exists in tandem with eliminating exclusionary zoning laws, reducing the cost of housing construction, and providing universal vouchers to help low-income tenants afford their rent.”

“To encourage people to still build more homes, it is important to exempt future construction from rent control and to allow landlords to increase rents annually by a moderate sum tied to inflation. Policymakers also want to make sure there are incentives to keep existing rental stock well-maintained; one way to do so is by allowing for vacancy decontrol so that when a tenant moves out, a landlord can upgrade the unit and charge a higher rent to the next tenant.”

“When it comes to worries that rent control policies might increase evictions (both formal and informal) as landlords are motivated by profit to convert to condos or force their tenants to vacate so they can renovate, the answer is that, similarly to all types of abuses of power in the market, there needs to be more oversight. A few policies that cities and states should enact are:

Just cause eviction statutes, which would require the landlord to justify kicking a tenant out of the property. The government can define what a reasonable justification is, including but not limited to failure to pay rent, desire to add another tenant to the renter’s lease, violation of lease terms, illegal activity, etc.

Right to counsel to ensure that tenants are not just getting steamrolled in these types of hearings. Numerous studies have pointed to the fact that the vast majority of tenants are going unrepresented by counsel.

A rental registry to keep track of tenants and landlords. One of the biggest factors leading to informal evictions is that the power imbalance between very low-income tenants and landlords leads the former to simply comply when told to leave their home, even if they have the right to stay. By creating a rental registry, landlords will know that their lease terms are being monitored by local officials and that they will be easily caught if they informally or illegally evict tenants in order to get around rent control laws.”

“Skeptics will correctly note that implementing all these ideas would increase the costs of renting out properties, which might push some landlords toward condo conversions or away from developing new units. That’s why it’s important to simultaneously make it cheaper and easier to build and renovate housing. As almost all urban economists have noted, the primary constraint on housing supply in America’s cities and suburbs is the regulatory morass that drives up the cost of developing and producing new homes and makes it nearly impossible for a landlord to extract multiple rents from a single lot by building multi-family housing.”

Biden’s Build Back Better Plan Contains One Potentially Helpful Housing Program

“Homelessness is a major issue in the U.S., and is inherently intertwined with the cost of housing. In fact, in a recent poll, respondents from the 20 metro areas that experienced the largest population growth between 2010–2019 listed both the cost of housing and homelessness as their top two concerns, and by almost identical margins (86 and 87 percent, respectively). The average cost of rent has increased nearly 20 percent within the last year alone, and since 2001, in nearly every state, rents have risen at a faster rate than incomes.

But simply offering rental assistance without a simultaneous increase in the supply of housing would only serve to exacerbate the cost problem, as a larger amount of money would chase after the exact same amount of inventory. In fact, the U.S. is currently as many as 5 million houses short of meeting estimated demand.

Of the roughly $150 billion which the Build Back Better Act appropriates toward housing, more than half is put toward dubious use, via rental assistance programs. About a third of that portion, though, is specifically tailored toward the construction or rehabilitation of more affordable housing units to increase the overall supply, which could help drive down costs.”

“The Build Back Better Act does fund the establishment of a “competitive grant program,” the Unlocking Possibilities Program, to incentivize “streamlining regulatory requirements and shorten[ing] processes, [and] reform[ing] zoning codes.” As with any grant program, its efficacy will be dictated by its implementation, but with more than $4.26 billion appropriated, there is plenty of breathing room to potentially make a difference.

In an ideal scenario, of course, there would be as few zoning restrictions as possible, allowing developers to simply respond to the needs of the community without requiring the government’s stamp of approval. While public funding to incentivize a reduction or simplification of red tape is better than the status quo, it is still not a perfect solution.”