The "Big Shift" That's Finally Causing Rents to Fall

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, you know what I'm not looking forward to in 2023?

Tracy Alloway (0:20)

It could be any number of things, but what?

Joe Weisenthal (0:24)

Well, I got a pretty, I got a decent price on a rental where I live in Manhattan.

Tracy Alloway (0:31)

Right, didn't you move during the pandemic?

Joe Weisenthal (0:33)

I did, I got a pretty good pandemic deal, and I am not looking forward.

And I think like, yeah, pretty good rent. I'm worried that at some point my landlord will perceive that there is a gap between what we're paying and what the market prices are and that my rent bill is gonna shoot up.

Tracy Alloway (0:50)

Well, I got a not very good deal on a rental post pandemic last year, and I've already gotten my one year rent renewal notice, and it was an automatic 5% pay increase, which kind of sucks.

Joe Weisenthal (1:04)

Yeah, that's not great. But wait, you did negotiate with them a little bit?

Tracy Alloway (1:10)

I did. I said, is there any way we could compromise on the rent to which their response was they knocked $75 off of their-

Joe Weisenthal (1:19)

Proposed hike.

Tracy Alloway (1:20)

Off their proposed hike. So I'm saving myself $75 a month, which I-

Joe Weisenthal (1:24)

Relative to the counterfeit.

Tracy Alloway (1:26)

I am grateful for the gesture. However, relative to the substantial New York rent, it's not, it's not that much. But I tried.

Joe Weisenthal (1:36)

So we know that like, all right, so obviously rent is really important for all kinds of reasons. It's another one of these highly salient prices that people pay. It's a huge component of the inflation measures.

What we know about the measures of rent seem to be two things. One is various private sector measures seem to have been turning down for a while, that's clear.

And it also seems like it's only a matter of time before that feeds into the official measures that the Fed likes to look at. We had a good episode last year with Omair Sharif talking about why there's that gap and how to think about reconciling these two measures. But how far is it gonna come down? Will there be a year in which our rent doesn't go up at all? Will other people in other parts of the country see rent? This is a huge topic. We've never actually done a pure rent episode as far as I know.

Tracy Alloway (2:24)

No, we haven't. And there are all these interesting little things you can start to pick out of the topic. So for instance, in New York, maybe rents are starting to come down now, but not nearly as quickly as in other parts of the country. New York is a big part of rent CPI, right? And so if New York prices stay sticky, it could have an overall effect on national rent prices.

And also I'm interested in talking also about some of the big picture developments that we have seen in this space. People talk a lot about private equity moving into multifamily housing, whether or not that's pushing up prices, the impact of new technology as well on how landlords actually come up with the prices that they charge people for their buildings. Lots to talk about.

Joe Weisenthal (3:08)

Well, you know, and we did talk about this recently with Connorsen who I thought made a really fascinating point, which is that like the rent, like apartment rent specifically, multifamily housing, it just has gone from strength to strength over the last like 15 years. You know, it's like after the great financial crisis, no one's gonna wanna own a home anymore, let's rent.

Millennials don't wanna live in the suburbs. Let's move to the city and rent. Millennials are delaying having kids.

Let's, you know, no reason to, you know, more rent. Like at every turn, multifamily dwellings have won. And there's this boom. And if you do a chart showing construction in multifamily versus construction in single family, single family is totally slumped, never got even backed anywhere near like pre-crisis levels. Whereas multifamily just keeps it booming. Is that a permanent thing or could like, there be like this sort of like Minsky moment for multifamily and for rental options where it's like the luck suddenly runs out.

Tracy Alloway (4:03)

Right, and so much of the market right now, housing in general, so single family plus multifamily, so much of the outlook is predicated on what you think is going to happen to supply and capacity. So that is really a key question.