Shrinking Household Formation Growth Hits Apartment Rents
Apartment List opines about housing inflation and why its data differs from the BLS.
Flat to shrinking household formation data in 2022 is putting a crimp on apartment rents, according to a recent report from Apartment List.
As of last month, the total number of households stood at 132.5 million, down by 143,000 compared to last year’s peak.
“It appears that renters are exhibiting much more caution in striking out on their own, as higher housing costs and general inflation have eroded their budgets, and as fears of a potential 2023 recession loom large in the public’s economic sentiment,” the report said.
This cooling demand has led to slower rent growth and “official estimates of housing inflation will reflect the cooling that our index has long been showing throughout the past year,” according to Apartment List.
This conflicts with the Bureau of Labor Statistics rent measurement of rent growth used in its official consumer price index (CPI), which showed rents rising throughout 2022.
Apartment List’s year-over-year growth rate fell from 17.9 percent in January to 4.6 percent in November, while BLS’s measure of rent growth increased from 3.8 percent in January to 7.9 percent in November.
BLS will next release inflation data at 8:30 a.m. on Jan. 12.
Why BLS Rent Growth Data Differs from Others
Apartment List explains this disparity by pointing out that its index measures rent differently than BLS.
Apartment List measures price changes for new leases, whereas the CPI measures changes across all households.
“Because only a small share of households will be moving to other homes in any given month, price changes filter into CPI much more slowly and gradually, meaning that our index serves as a leading indicator for the housing components of CPI,” Apartment List said.
Apartment List expects BLS’ reading to change directions in the first half of 2023 and begin to gradually fall.
“Thankfully, the topline inflation numbers have already started to cool, even with the housing component still keeping CPI propped up,” it said. “[In 2023], when the CPI’s housing measure begins to reflect the rapid cooldown in the rental market that we see in our index, it should contribute to further moderation of inflation overall.”