Your Rent's About to Get Even Higher

Story by Bloomberg
Written by Victoria Stilwell

If the monthly rent check is already painful to write, brace yourself.

The Census Bureau's U.S. rental vacancy rate, which tracks the share of properties that are unoccupied, fell to 6.8 percent in the second quarter. That's the lowest level using comparable data since 1985.

The short supply of units means "rental inflation is not going away anytime soon," Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC, wrote in a note to clients.



Already rents have climbed 3.5 percent in the 12 months through June, matching the biggest jump since 2008, Labor Department data show. That far outstrips the increase in consumer prices excluding food and fuel, which gained 1.8 percent in the same period.

While that may be good news for Federal Reserve policy makers who'd like to see inflation go higher, it may limit the amount of money consumers can spend on things besides shelter.

The rising demand for rental units is being driven by a surge in household formation. Some 2.16 million new households have come online in the last year, the Census data show, and all of that increase has come from renters. The number of owner-occupied households fell by 51,000 in the second quarter from a year earlier.

As a result, rents are "set to accelerate," wrote Ed Stansfield and Andrew Hunter, economists at Capital Economics Ltd., in a note to clients. "Our forecasts that rents will grow at an annual rate of 5 percent both this year and next would represent the fastest rate of rental growth since the 1980s."

Rents rising that quickly may make homeownership much more attractive for those who can afford it. That, combined with the improving outlook for employment and incomes, means the "homeownership rate will soon find a floor," they wrote.