Inflation hits residential rents hard

Amy Scott Nov 16, 2011

Inflation hits residential rents hard

Amy Scott Nov 16, 2011

Steve Chiotakis: Inflation doesn’t appear to be a problem in the U.S. economy, at least for now anyway. The Labor Department said today the nation’s Consumer Price Index fell by just 0.1 percent last month.

But one detail in the numbers bears some noting: residential rents are up almost 2.5 percent from a year ago. And Marketplace’s Amy Scott joins us live right now with the latest on those numbers. Good morning Amy.

Amy Scott: Good morning.

Chiotakis: What’s going on here? Why are the rents going up?

Scott: Well, this is all about the slow housing market.

I talked earlier with Ryan Sweet who follows inflation at Moody’s Analytics. And he says people who might normally have bought homes are waiting for the market — and the economy — to get better.

Ryan Sweet: Single family home sales have been moving sideways for several years. People are still worried about their jobs and future income, so we’re seeing an increase in demand for apartments.

And when more people want apartments, landlords can get away with charging higher rents.

Another economist I spoke to this morning, Cary Leahey at Decision Economics, told me that in New York city, rents are actually approaching their peaks from before the latest recession.

Chiotakis: And what does that mean for the economy, Amy? I mean the broader picture.

Scott: Well, it means that people who pay rent have less money to spend on other things — so we could see a hit to consumer spending, which is a big driver in the economy.

On the other hand, Leahey says it puts more money in landlords’ pockets.

Cary Leahey: People who weren’t necessarily anticipating any income on their unsold property are now being able to rent them and generate some income, so that’s all positive.

Chiotakis: All positive. But I’m sure some renters probably don’t feel that way right?

Scott: Right. But the good news for renters is that more of those unsold buildings getting turned into rentals, so we could see rents stabilize a bit as that happens.

Chiotakis: Marketplace’s Amy Scott, reporting live for us this morning. Amy, thanks.

Scott: You’re welcome.

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