Home Money Rents Continue to Rise Faster Than Inflation

Rents Continue to Rise Faster Than Inflation

by Chris Poindexter

No, it’s not your imagination, rugged individualist: Living alone and renting an apartment are getting more expensive, and the increases are outracing both inflation and wage growth. Rising rents and out-of-pocket health care expenses combined to raise the August Consumer Price Index by double the amount experts had expected.

Analysts were expecting to see the CPI increase by 0.1% but instead were shocked by its 100% jump to 0.2% increase, which indicates that inflation may be picking up steam. The news sent stock indexes into a tailspin and the dollar surged against foreign currencies, as investors fear inflation may embolden the Fed to move ahead with an interest rate increase later this month.

The Rent is Still Too Da** High

One of the factors pushing inflation are escalating rents, which rose 0.3% in August and have risen by the same margin every month since April. Rents are going up faster than wages, which is putting stress on low and middle-income wage earners. In fact, rents are going up an average of 3.8% per year, while hourly earnings are increasing by just 2.4% per year. This is because the supply of available apartments is not keeping pace with demand as rising real estate costs keep more Americans out of the housing market.

Few Good Options

Sometimes there’s just no polite way to describe market conditions in housing. Right now our housing options stink. Americans have a right to be uneasy about owning a house and many are simply locked out of the process altogether by escalating costs. Bizarrely, housing prices are increasing at a time when the number of people owning a home has been steadily declining since 2006. Part of the dynamic is the increase in older Americans who are renting instead of keeping the big house they needed when raising their now-adult kids.

Warped Market Dynamics

A report by Harvard University details the peculiarities of the housing market; conditions that have made life difficult for everyone, but which are hitting poor and middle-income Americans hardest. The lowest wage earners are at a greatest risk of being evicted and, as rents increase, poverty becomes more concentrated in major urban centers.

The bizarre nature of the housing market is also setting up some odd dynamics. In many places it now costs nearly as much to rent a one-bedroom apartment as it does a two-bedroom unit. While it’s still more expensive for two-bedroom units, the rents on one-bedroom apartments have been rising faster and the gap is closing. The rent for two-bedroom apartments has been rising at about three percent per year while the rent for one-bedroom apartments is going up over five percent per year.

Even though new home sales and household formation has started to pick up, both metrics are still near historic lows. What the numbers are saying is that the housing options we have today don’t meet the needs of people looking for a place to live. Living by yourself is getting more expensive faster than sharing a place with a roommate.

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