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Inflation is tame — unless you’re a renter

Mitchell Hartman Nov 17, 2015

Inflation ticked up in October, but still remains relatively low by historic standards. The Bureau of Labor Statistics reported the Consumer Price Index (CPI) rose 0.2 percent for all items; it rose the same percentage not accounting for volatile food and energy prices. For the past year,  the CPI has risen just 0.2 percent — largely because gasoline prices have fallen by 28 percent.

But for people who rent, especially in popular urban areas, there is significant inflation to contend with. The CPI report showed that rents have risen 3.7 percent in the past 12 months.

Some metro areas, meanwhile, are experiencing double-digit rent inflation. According to data from the real estate firm Zillow, rents in San Francisco are up 13 percent year-over-year; Denver is up 11.5 percent; Portland, Oregon is up 10.5 percent. Other cities are rising much faster than rents nationwide, including Dallas, Texas; Boston, Massachusetts; Seattle, Washington; Cincinnati, Ohio; Kansas City, Missouri; Sacramento, California; and San Jose, California.

What’s driving higher rents is the declining homeownership rate, the propensity of younger people to rent rather than buy (in part because of their high levels of student debt), and the precipitous decline in homebuilding since the housing crash. Those factors have contributed to a very low rental vacancy rate nationwide.

In hot urban markets where rents are soaring, there are added pressures on the rental-housing stock. That includes a lot of young college graduates flooding in for jobs in high-tech and other well-paid fields, and empty nesters moving back into busy downtowns with lots of disposable income.

Nicolas Retsinas of Harvard’s Joint Center for Housing Studies, which recently studied the affordable housing crisis, said developers are aiming much of their new multifamily housing at this relatively affluent market. 

“Last year, median rent of newly constructed rental housing was about $1,300 per month,” Retsinas said. “That would equal about 50 percent of the median income of renters nationwide — which means that over half of renters couldn’t afford that rent.”

In Portland, Oregon, where the median rent has risen by double digits in the past year, according to Zillow’s data tracking, it’s not hard to find someone who’s been displaced by rising rents.

Richard Seymour helps manage a local nonprofit, Free Geek, that does electronics recycling. He lived in the same building for 15 years—it’s a large early-1900s single-family home that had been converted into four apartments. Over that time, his rent rose moderately—from $500 to $700 a month. Then, in September, the long-time owners of the building sold to a young couple from out of town: for $800,000.

“And what happened the next day, everybody in the building got an eviction notice or a substantial rent-hike,” Seymour said. “So my $700 rent was suddenly $2,000.” Seymour and the other tenants moved out soon after; the building is now being renovated.

Affordable housing advocates in Portland have taken to the streets to protest such conversions and demolitions — where developers buy older multi-family buildings, clear the land, and put up new apartment buildings with rents at double or triple the cost.

At a demonstration against building demolition and redevelopment in one of Portland’s inner urban neighborhoods, retiree Michael Johnson said, “I don’t believe all these old homes should be torn down and thrown in the dump. I think the mayor has given the developers pretty much free reign of the city. There are a lot of people who can’t afford to live in those steel-and-glass condos they’re putting up everywhere.”

But small-business owner Netty Haze, whose clothing store Jambo is just down the street from the decrepit apartment house that was being demolished, wasn’t so sympathetic to the protesters. She said the building had been an eyesore and had attracted squatters in recent years.

“Everybody has a right to do what they want with their property,” she said of the developer. “It’s unfortunate when some buildings go. There’s not really anything you can do about it. You have to accommodate how we’re growing.”

City government is trying to address the growing rent crisis in Portland. Mayor Charlie Hales has declared a ‘housing emergency’ for both affordable housing and homelessness in the city — similar to actions in Los Angeles, Seattle and Hawaii.

“Like the Dickens quote, it is the best of times and the worst of times,” Hales said in an interview. He said neighborhoods are booming, the city is attracting startups, and well-paying jobs are being created. But, he added, “for someone who’s working for moderate wages trying to hang on to their rental unit, it’s a scary time.”

The city plans to pump more than $150 million into funding and developing more affordable housing. But that will only meet a fraction of the need, as low- and middle-income residents are driven by evictions and rising rents to move farther from the urban core to find affordable housing.

“The legislature has preempted us from having rent control,” Hales said. “We need to have the private market required to do more than they’re doing now, private developers to budget for and set aside a percentage of units to be affordable.”

But Portland developer Eric Cress — whose firm Urban Development Partners, has built some of the signature new apartment buildings on busy retail strips in the city in recent years — said any affordable housing mandates from city or state government would likely lead businessmen like him to build fewer new apartments. And he said that would exacerbate the affordable housing crisis.

“I would say the challenge is, we’re in a competitive marketplace,” Cress said. “So let’s say for instance I decided on my own accord to put two affordable units for every 20 units I build, I wouldn’t be able to provide the yields to attract the capital to build the building.”

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