If you are a renter, how much did your rent go up this past year? What’s your expectation for 2015?
Let’s explore those questions starting with a chart on rent from the MarketWatch article Here’s What Americans Spent on Rent this Year.
Cumulative Rent Growth
In isolation, the chart is misleading because it included growth in rent collected which varies by population increases. It does not reflect percentage increases in base rent.
Both MarketWatch and Zillow explain it that way, but one has to read carefully to pick that up.
Americans shelled out $20.6 billion more in rent in 2014 compared to 2013. Cumulatively, U.S. renters paid $441 billion in rent in 2014 compared to $420 billion last year, an increase of nearly five percent (4.9 percent), as both the number of renting households and the average rent rose nationally, according to a Zillow rentals analysisi.
Locally, the Bay Area, consisting of the San Jose and San Francisco metros, saw the largest jump in cumulative rent paid in 2014, up 14.4 and 13.5 percent respectively. Rent per household in the San Jose, Calif. metro rose by $197 per month, while rent in the San Francisco metro rose by $163 per month.
What Percentage Did Rents Really Go Up?
That looks like a shocking stat for San Jose and San Francisco. If one inaccurately places all of the increase on rising rent, the hike would be a whopping $2,364 per year!
However, Zillo explains “Nationally, the total number of renters is estimated to have grown 1.9 percent in 2014ii. Over the same time period, the median rent paid increased 2.9 percent.”
Fair enough, but also consider this Zillow statement: “Over the past fourteen years, rents have grown at twice the pace of income due to weak income growth, burgeoning rental demand, and insufficient growth in the supply of rental housing.“
Does income growth also factor in the rise in population? If not, it’s a very invalid comparison.
Regardless, inquiring minds are probably interested in this question: In percentage terms, how much did rental prices really increase in San Jose, San Francisco, Miami, and Chicago?
Zillow did not even say.
Instead Zillow Chief Economist Stan Humphries explains “Next year, we expect rents to rise even faster than home values, meaning that another increase in total rent paid similar to that seen this year isn’t out of the question. In fact, it’s probable.”
Fred to the Rescue
The St. Louis Fed also keeps tracks of rent, albeit in the form of “Owners’ Equivalent Rent”.
There are four pages to scroll through. Instead of posting the raw index for each chart, I displayed percent change from a year ago in each of the following charts.
CPI Rent of Primary Residence All Urban Consumers
OER New York, Northern New Jersey, Long Island
OER Miami, FT. Lauderdale
OER Los Angeles, Riverside, Orange County
OER San Francisco, Oakland, San Jose
An increase of 5.1% for San Francisco, Oakland, and San Jose is pretty steep, but nothing like the misleading Zillow-reported 13.5%.
To be fair, Fred added Oakland to the mix, but it’s safe to assume rents did not rise anywhere close to 13.5%.
Mike “Mish” Shedlock