Explaining Rent Inflation

Despite the purported “housing recession,” writes Derek Thompson in The Atlantic, “rents are at an all-time high—and official rent inflation is still surging.” According to Jeff Tucker, senior economist at Zillow, their annual rent growth index hit 17 percent this year. “Rents have blown up in many of the same metropolitan areas where housing costs have risen, such as Charlotte, North Carolina; Atlanta; Austin, Texas; and Salt Lake City.”

As Thompson notes, “we’re likely to see official rent inflation continue to rise many months after private markets, such as Zillow, suggest that the worst of it is over.” Thompson explains why demand surged so much in recent years, as well as the “slightly wonkier mystery” of what is actually happening to rent inflation. Changes in rent prices take several months to be reflected in national data, largely because “At any given time, the majority of tenants surveyed by the government are paying rent at a price locked in earlier.”

“The annual inflation rate for new rental listings has almost certainly peaked. But the official CPI [Consumer Price Index] rent-inflation rate is almost certainly going to keep going up for another quarter or more.” In other words, even though rent inflation will likely continue to be a talking point, it may have already reached its highest point.