Housing inflation worse than official BLS data show

Across the country, renters looking for new homes are facing dizzying double-digit rent increases. But you don’t know that from official federal inflation data.

The rate of change in annual rents for new tenants has more than doubled over the past eight months, reaching the highest level on record, according to the Bureau of Labor Statistics, published by The Times. The data, which is not publicly available, paints a very different picture for existing tenants—those who renew leases instead of moving into a new apartment—suggesting home values ​​may continue to rise despite some vice versa.

And given that housing is both the largest contributor to core inflation and a lagging figure, recent rent increases indicate that headline inflation continues to rise, even as it rises. shows signs of retreat in other sectors.

In its latest Consumer Price Index Inflation Report, the BLS reported annual home value inflation in May at 5.4%, the highest level since 1991. This figure is a weighted average designed to reflect the rate of inflation affecting new and existing tenants and homeowners. same

But the non-public data behind the total shows a gulf between the prevailing conditions affecting those who moved and those who didn’t. The annual rent for new tenants jumped from 4.3% in July 2021 to 11.1% in March 2022. For existing tenants, inflation was lower and grew at a slower pace over this period, climbing from 1.5% to 2.7%. A similar trend was observed among the residents of apartments occupied by owners. (The BLS is expected to release inflation data for June on Wednesday.)

As part of its research, BLS visits a specific group of households once every six months to track changes in rent. If it finds another tenant, it treats it as a new tenant, but if the tenant remains the same, it is classified as a permanent tenant. Since 75% to 80% of renters stay in their homes every year, the total figure is weighted by the rate of inflation experienced by permanent renters.

With the spread between new and permanent renters at an all-time high, this bias is even more pronounced than usual, according to BLS data. This gives new arguments to critics who argue that the data released by the BLS does not reflect the severity of housing inflation, especially in states like California where housing costs are higher.

“In the current economic climate, with housing inflation rising, the BLS is underestimating the pace of change in home prices,” said Sung Won Son, president of LA-based SS Economics and professor of economics at Loyola Marymount University.

In addition to masking the degree of inflation new tenants face, Zohn says the agency also distorts the reality of the market in how it calculates the cost of owning a home. Nearly two-thirds of Americans live in their own homes.

Since 1983, the BLS has approximated the rent of owner-occupied homes by measuring the rent paid by tenants in the same area. This is then translated into a rental equivalent.

“To me, owner-occupied rent is a bit of a wild guess in the official figures,” Son said. “If I were renting out my own house to myself right now when the price increase is really high, I would pay a lot more than the rent for the apartment, but the BLS wouldn’t necessarily reflect that.”

In an interview, BLS economist Steve Reed defended the bureau’s methodology, acknowledging that the single-digit housing inflation figure it provides to the public as part of a closely monitored consumer price index does not tell the whole story.

“The CPI reflects the totality of rental units quite well, while the other measures only refer to new tenants, who make up a small fraction of all rent payers,” Reid said. Internally, BLS has been tracking varying inflation rates for new and permanent tenants since December 2017.

“There is a sort of hypothesis that the rent change is more about new tenants, and we wanted to identify this in our sample to see if that was true,” he said. “The findings do support what we suspected was true.”

Reid also said that the BLS is still “going along with the general idea of ​​a rental equivalent” for tracking inflation in owner-occupied homes. But he said the agency is exploring new ways to cover “out-of-pocket” home ownership costs, such as maintenance. “We are doing some research to create alternative arrangements for different populations, and in some of these cases, we believe that equivalent rent may be less appropriate,” he said.

Lease renewals have reached record levels recently as tenants put off finding apartments in an increasingly volatile rental market, said Jay Parsons, chief economist at RealPage, a firm that tracks changes in rental prices.

“These data suggest that rents are rising very quickly, faster than before, for new tenants after a long period of slower price growth,” said David Wessel, director of the Brookings Institution’s Hutchins Center for Fiscal and Monetary Policy.

He said past trends suggest it’s only a matter of time before higher inflation reflects on renewals as well.