Thursday, February 09, 2006

Measuring #2: Rents

Heck the bubble popping means rents will crater as well, right?

Don't be so quick. Rents are driven up by costs and down by competition. There are going to be a lot, lot more familes looking for rental housing, there isn't going to be another two sticks nailed together for more rental housing for a long, long time. The tax, energy and other components of providing rental housing are very very inflationary. There's going to be a lot of pressure on rent prices.

Interesting story. About 10 years ago the voters of San Bernardino approved a small parcel tax to fund libraries or law inforcement or something so I raised the rent an equivalent amount. My renter was dumbfounded, the tax was on property owners not renters she said. Some peoples iz so stupid.

Anyway, there's so much froth in the total housing market I wouldn't even try to guess what will go on with rents in the short term. Not just banks being reluctant landlords but boomer second homes becoming boomerang children's homes that won't relect market rents and the impending spate of divorces and houshold dissolution. there's also going to a rush of inexperienced landlords who won't correctly price their products. It's going to be amateur fire department hour as the neighborhood burns. That said, in the long term rents have to go up.

This is bad for inflation. The CPI includes 23% as owners equivalent rent. OER is a construct put together to undereport inflation. It assumes that even as you actually pay $3500 in PITI monthly you are only paying $2000, the amount the same property would rent on the open market. I fully expect the Fed to change the OER just in time to catch the slide in housing and thus continue to underreport inflation.

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