Rent growth and its discontents


PA, a regular reader, sent me a link to an article that sets out the basic data behind the explosion in rents that we have been seeing over the past 2+ years.

The trend lines in the graphs all go the direction you would expect… more rented units, lower vacancy, increasing rents.

What isn’t graphed, but is discussed, is the effect of increasing rents on households. Would be nice to see showing the portion of income claimed by housing over time, which I’m sure is growing.

One interesting thought the graphs bring to mind is the cost of the economy of the increasing price of shelter. Each additional dollar of rent needs to come from somewhere else in a family’s budget. What this means is that there is less money for food, clothes, education, etc.

And I guess the next thing to note is that rental housing is not very employment intensive. For example: We collect probably $200,000 / month in rents (with a lot more coming online soon) with a pretty minimal staff. My guess is that a restaurant that collects the same amount of money would need a lot more employees.

Consider what that means nationwide: The growth in rents is probably holding down employment growth and thereby keeping the economy smaller than it could be.

You would think that strong demand for rentals would result in a rapid expansion of supply. But, as we’ve discussed a million times here, in desirable areas, developers face governmental restrictions which severely restrict their (our?) ability to add supply to the market.

So, the net result is that owners of rental properties are benefiting from artificial supply constraints to earn disproportionate returns. Great for me and my investors. Terrible for the economy.