Housing costs still feed inflation — despite steady rents
Housing costs still feed inflation — despite steady rents
The cost of shelter has been a persistent source of inflation in this economy. In Wednesday’s consumer price index report, shelter accounted for nearly a third of price gains from December to January.
Yes, that sounds bad. But rent inflation has actually been coming down lately.
The Labor Department’s definition of shelter costs includes rents. But it also includes what it calls lodging away from home.
“Just think of that as basically hotels when you go on vacation,” said Chen Zhao, head of economic research at real estate company Redfin.
She said those lodging costs went up in January. But rents have not been increasing so quickly, according to the Labor Department and Redfin’s own data.
“What you’ll see is that for the last 2, 2½ years, rents have been really flat. And in some parts of the country, rents have even been falling,” said Zhao.
A lot of newly built apartments are finally coming online, said Bill Adams, chief economist at Comerica Bank. This is happening the most in the Sun Belt, “where there’s lots of undeveloped land and where homebuilding is cheaper and faster to do.”
But in other parts of the country, the pipeline of new apartments is still pretty constrained, especially in the Northeast and coastal West.
“We’re likely to see faster rent increases in markets that are adding less supply, where construction is more expensive,” said Adams.
The numbers of apartment construction projects and building permits have been trending lower.
Chen Zhao at Redfin said some contractors don’t want to keep building apartments if rents are stagnant. “They’re also facing very high financing costs because interest rates continue to be high,” said Zhao.
All of that means the supply of new apartments could start to dwindle, said Ben Ayers, senior economist at Nationwide.
“You know, a year from now, two years from now, we might be back in a similar situation, where we’re talking about constrained housing supply, because we’re just not building enough to keep up with the amount of demand in the market,” said Ayers.
That means housing costs could put even more pressure on inflation.
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