Rising Rents Threaten to Prop Up Inflation

He and other economists said it was too early to tell to what extent, and for how long, rents would prop up overall prices.

“I do think we’ll see some upside from rents, and that will offset some of the declines in goods categories,” said Michelle Meyer, head of U.S. economics at Bank of America. But the “only way” that rents rise enough to keep inflation uncomfortably high, she added, is “if wages are persistently higher.”

How much landlords can charge hinges on how much tenants can afford. Lower-paid workers are seeing strong pay gains, but many economists expect those to fade as the economy gets through reopening.

Another key factor, Mr. Yun said, is whether “homebuilders are being active to supply new homes and apartments to match up with this rise in rent.”

Data do suggest that a substantial new supply of apartments should be on the way this year, but it’s unclear whether they will match up with the demand in location and timing.

For now, the rental experience diverges across markets. Rents have appreciated rapidly in places like Boise, Idaho; Spokane, Wash.; and Phoenix, while big cities on the coasts have lagged, based on Zillow data. Rents in New York City and San Francisco are recovering quickly but remain cheaper than two years ago.

In New York, “the rental market was crushed,” said Jonathan Miller, chief executive of Miller Samuel, a local real estate appraisal firm. But the pace of new leases over the past three months, with tales of bidding wars, is turning that around. Mr. Miller expects rents to fully recover as companies bring workers back to the office this autumn, pulling them back from far-flung remote work locations, he said.

Article source: https://www.nytimes.com/2021/07/22/business/economy/rising-rents-inflation.html