Rents are rising at the slowest pace in more than a year…
A measure of what Americans are paying for rent was up 3.7% in October and again in November from a year earlier. Rent inflation dipped to that level in September 2016 but was last consistently that low in the opening months of 2016, according to Labor Department data.
My impression is that housing construction is still low relative to potential demand, so I was not sure what to make of this. I recommend Ed Yardeni’s charts, particularly figure 16, which shows the percent of households who rent rather than own. That soared between 2005 and 2015, but it has edged down since then. Also, figure 20 shows that the rental vacancy rate was falling until 2015, but it has been rising more recently.
Multifamily starts are up considerably in high rent districts such as the San Francisco Bay Area, Seattle, NYC, Portland, etc. That, in combination with rising home ownership ratio and higher Single Family starts/completions is causing rents to rise less intensely. BTW, I’m a principal in a private equity real estate company that focuses on multifamily.
Could you write here about your company’s experiences with new construction? How difficult, costly, time consuming, etc. is the process these days.
We don’t do new construction because it doesn’t fit well with our intrinsic skill set, which is some knowledge of finance and economics. With new construction, there is an inherent lag between when you commit to the investment, and when the product can be rented or sold. I’m not super excited to bear the risk of the market going to pieces during this time lag, which can be anywhere from 18 months to over 4 years. Also, our firm is not particularly politically connected, and often the politically connected are in the best position to move their projects through the local bureaucracy.
Hope this helps.
second derivative went negative..woo hoo