Nov 07


Second-order effects in action again. 

Since January of this year, the national median rent has increased by a staggering 16.4 percent. To put that in context, rent growth from January to October averaged just 3.2 percent in the pre-pandemic years from 2017-2019.

https://www.apartmentlist.com/research/national-rent-data?

We expected to see rents increase as a result of the moratoriums. In fact, using RentoMeter.com we are witnessing even slightly higher increases in many Milwaukee neighborhoods. 

  • Owners need to make up for lost rents caused by the moratoriums.
  • The lack of units available for rent. I find this due to owners removing them from the market to sell or out of fear of removing nonpaying renters. Many owners I’ve spoken are prepping units for sale rather than offering them for rent.
  • The dramatic increase in real estate prices drives up both the cost of ownership and the income needed to meet cap rate expectations. Home Prices Continue Record-Setting Pace, Rising 19.7 % in July | Economy | US News
  • Inflation will force rents to increase. The CPI is up 5.4% year over year. CPI Inflation Calculator Private sector hourly wages in Milwaukee have increased 5.6% YoY Sept. If you look at weekly earnings, it is 11.9%. Databases, Tables & Calculators by Subject At my company, labor costs have risen nearly 10% since June, as we keep up with the wages others are offering. And it is very hard to find employees today.

Point one is temporary, as is the second point. We have already seen a slight increase in vacant units in the past two weeks. We are still below 0.5%, a tenth of what we expected.

I anticipate the third and fourth points having a lasting impact on rents. In part, the sale prices are driven up by artificially low-interest rates. In part, sale prices are up due to the inability to build new homes due to material shortages, U.S. homebuilding stumbles amid unrelenting supply constraints | Reuters and labor shortages U.S. Chamber Commercial Construction Index – Q3 2021 | U.S. Chamber of Commerce

Some will clamor that this calls for rent control, but rent control has failed communities terribly

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