Across the country, renters looking for new homes are facing staggering increases in rent. But you wouldn’t know that from the official federal census of inflation data.
In the past eight months, the rate of change in annual rent costs for new tenants has doubled, reaching an all-time high, according to data from the Bureau of Labor Statistics reviewed by The Times. The data, which is not in the public domain, shows a very different picture of existing tenants – those who are renewing their leases rather than moving into a new apartment – suggesting that the cost of housing may continue to rise, despite some indications to the contrary.
As housing is the largest contributor to core inflation and a lagging indicator, the recent escalation in rents indicates that overall inflation continues to rise even while it is showing signs of subsidence in other sectors.
In its latest CPI inflation report, the BLS said annual shelter-cost inflation reached 5.4% in May, the highest since 1991. This number is a weighted average designed to reflect the rate of inflation affecting new and continuing renters and homeowners. Such as.
But the non-public data behind the base figure shows a gap between the prevailing conditions affecting those who moved and those who did not. Annual rent costs for new tenants jumped from 4.3% in July 2021 to 11.1% in March 2022. For existing renters, inflation was lower and grew at a slower pace during that period, jumping from 1.5% to 2.7%. For residents of owner-occupied units, the trend was similar. (The BLS is expected to release inflation data for June on Wednesday.)
To conduct the survey, the BLS visits a certain group of households once every six months to track changes in rental rates. If it finds a different tenant, it treats it as a new tenant, but if the tenant remains the same, they are classified as continuing tenants. With 75% to 80% of renters staying in their homes each year, the core figure is weighted toward the rate of inflation experienced by continuing renters.
With the spread between new and continuing tenant rates at an all-time high, according to BLS data, this bias is more pronounced than usual. This gives new ammunition to critics who have argued that the data published by the BLS fail to reflect the severity of housing inflation, especially in states like California, where the cost of housing is higher.
“In current economic conditions, when housing inflation is rising, the BLS reduces the pace of housing price change,” said Sung Won Sohn, president of Los Angeles-based SS Economics and professor of economics at Loyola Marymount University.
In addition to masking the scale of inflation faced by new tenants, Son said, the agency is also distorting market realities in the way it calculates the cost of home ownership. Nearly two-thirds of Americans live in homes they own.
Since 1983, the BLS has approximated the rental value of owner-occupied homes by measuring the rent paid by tenants in the same vicinity. This is then translated into the rental equivalent.
“To me, landlord-occupied rent is kind of wild guesswork in the official data,” Son said. “If I were to rent my own house to myself right now when the price hike is really high, I’d pay a lot more than you would be charged for an apartment rent but the BLS wouldn’t necessarily reflect that.”
In an interview, BLS economist Steve Reed defended the bureau’s methodology while acknowledging the single-digit housing inflation gauge it presents to the public as part of a closely watched CPI that fails to capture the full picture.
“The CPI reflects the world of rental units fairly well, while other metrics only look at new tenants, who are a small subset of all rent payers,” Reed said. Internally, the BLS tracks different inflation rates for new tenants versus continuing tenants since December 2017.
“There is kind of a hypothesis that the rental price change is more for new tenants and we wanted to identify that in our sample to see if that was true,” he said. “The results confirm what we suspected to be true.”
Reed also said that the BLS remains “comfortable with the general idea of the rent equivalent” to track the inflation of owner-occupied homes. But he said the agency is exploring new ways to charge for “petty” costs of home ownership such as maintenance. “We are doing some research to create some alternative measures for different subgroups of the population, and in some of these cases we think the rent equation may be less appropriate,” he said.
Jay Parsons, chief economist at RealPage, a company that tracks rent price changes, said lease renewals have hit record levels lately as tenants put off the search for an apartment in an ever more volatile rental market.
“This data is evidence that rents are rising very quickly, faster than they have been, for new renters after a long period of slowing price growth,” said David Wessel, director of the Hutchins Center for Fiscal and Monetary Policy at the Brookings Institution.
He said past trends indicate that it is only a matter of time before the high rate of inflation turns to renewals as well.
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