The horizon is not so far as we can see, but as far as we can imagine

Official Inflation vs. Real Inflation (Rent Edition)

So, rent increases:

In the 50 largest U.S. metro areas, median rent rose an astounding 19.3 percent from December 2020 to December 2021, according to a Realtor.com analysis of properties with two or fewer bedrooms. And nowhere was the jump bigger than in the Miami metro area, where the median rent exploded to $2,850, 49.8 percent higher than the previous year.

Other cities across Florida — Tampa, Orlando and Jacksonville — and the Sun Belt destinations of San Diego, Las Vegas, Austin, Texas, and Memphis, Tennessee, all saw spikes of more than 25 percent during that time period.

Bozeman, Montana (not in that top 50):

According to the rental site Zumper, the average two-bedroom apartment in Bozeman surged from $1,300-a-month in February of 2020 to $2,175 in February of 2022. 

BOOM.

The fact is that official inflation numbers (and even those are jumping) are underreported and have been for decades. The nonsense of hedonic adjustments, things like taking prices from places like CostCo which poor people can’t reach and how the basket is determined, among other things, have made inflation appear much less than it actually has been. In no way have wages for most people, especially in the bottom 50 percent, kept up.

Homes and apartments are being snapped up en-masse by private equity and other large private investors who are raising rents massively and holding vast numbers of properties off the market to keep prices up. Places like Bozeman get hit hard, as workers who can now work remote got there, and with their “big city” money drive up prices — which are still low to them, but which locals can’t afford, and so on.

Prices rising faster than wages is one of the simple stories of the last 50 years that rarely gets told, because official stats make it seem like it didn’t happen.

But people feel it, and it has political consequences. As people feel poorer and poorer, and perceive their future will be poorer still, they are willing to turn to people like Trump and LePen, or vote for policies like Brexit. They know they are in a trap, and they will do anything to get out, like a wolf who will chew of it’s own leg to escape a leg trap.

Wise governments and ruling classes don’t make their populations desperate, because desperate populations are the seeding ground for tyrants, men-on-horseback, fascism, and revolutions of all kinds.

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11 Comments

  1. Willy

    I heard on the radio (music station, not a news source), that 60% of the American population doesn’t sleep well at night because of personal finances. What was that number back in the 70’s? 10-20%?

    I’m surrounded in my own life, everywhere, with disturbing oddities like the over-40 well-educated formerly-well-paid person who either has to move clear across the country just to get meaningful work, or it can’t find it at all.

    When I mention these things to staunch conservatives they’ll invariably say things like “Well yeah, the left ruins everything!” or they’ll double down on praising the very libertarian policies which caused all this.

    I did notice Biden shifting away from third-way neoliberal to at least acting like he’s listening to his “friend” Bernie with various proposed policies, to then bitch about the corporate corrupt Manchin and Sinema blocking it all, while right wingers cry “Marxists are stealing elections!”

    I noticed when even Putin called all this out, although his rebuilt Grozny is often said to be a neoliberal investors paradise hostile to its working poor.

    And then we have people actually debating over the benefits of Musk trying to buy all of Twitter with his spare cash, so that he alone can determine what “free speech” makes it through his filter, so that he alone can “save democracy”.

    Good god and WTF. Don’t make people too rich, too powerful, too callous or sociopathic, and we won’t have these issues to begin with. Seems like basic common sense. Yet I don’t (fully) understand why people cling so tightly to their dysfunctional viewpoints.

  2. jo6pac

    ” desperate populations are the seeding ground for tyrants, men-on-horseback, fascism and revolutions of all kinds.”

    This sounds like a plan by the 1%. It keeps citizens at each other throats that don’t see the large picture of us on Main Street all suffer. It’s to bad we don’t have person like MLK today;-)

  3. GlassHammer

    We went from the end of “compensatory consumption” (I.E. the promise that despite how awful your life, culture, environment, and job may be, you will still have access to wonderful and affordable products.) to the end of “necessity consumption” (I.E. the promise that you despite how awful your life, culture, environment, and job may be, you want starve or die from exposure.) in little more than a decade.

  4. Hickory

    What do you believe caused the huge rental increases? Free gov’t money at the the start of Covid to large corporations allowing private equity to buy houses and control the rental market? Hardly seems to explain 50-100% increase in 2 years.

  5. GlassHammer

    Hickory,

    Rents have gone up because:
    1. We have an expensive housing market with a total inventory of homes that is too small relative to the population pushing more to renting instead of home ownership.

    2. More wealthy renters and the continued gentrification of cities.

    3. New homes and apartments are being made for high end buyers not middle and low income buyers.

    4. With Telework offered to more white collar workers they have started moving into the countryside and driving up rents and home prices.

  6. Z

    The huge amount of money the Fed supplied to the banking system also found its way to private equity to borrow on low interest terms in order to buy up houses and rental properties and place the control of those regional markets into a few large players who likely colluded to drive up the price of houses and rents.

    The Fed also connected their liquidity hose to Larry’s and Stanley’s Asset Inflation Factory BlackRock to buy up MBSs and REITs which boosted the values of the underlying assets, aka the properties.

    https://pbs.twimg.com/media/FIhwiTVXMAoW64J?format=jpg&name=large

    https://pbs.twimg.com/media/FIMG70IXEAke-Bk?format=jpg&name=900×900

    Z

  7. DMC

    Apparently, many of the big private equity firms that are buying up housing are also keeping a lot of it off the market to an artificially inflate the worth of the properties that are on the market. This is where there needs to be a tax on properties that sit vacant for more than say 6 months. This kind of artificial market manipulation has got to stop or the homeless crisis will reach critical levels.

  8. Jorge

    1) Real estate is (generally) exempt from US money-laundering laws. A lot of inner-city super-premium penthouses etc. are owned by foreign plutocrats and sit empty. Street retail in these neighborhoods (florists, fancy restaurants) are drying up. This displaces local rich people to “just plain premium”, which displaces doctors etc. downwards through the class ranks. Given that the US has signaled long-term degradation of the dollar’s world power, I can foreigners dumping cash and buying this kind of real estate.
    2) I don’t believe the “we’re keeping it off the market” theory- private equity deals generally run at very thin margins. If you buy a house in the burbs and leave it alone for months, it’s going to go to hell even if you pay locals to fix it up. Dead houses make dead neighborhoods, which rot. Now, the people at HQ making these deals don’t really understand the dynamics of what they’re buying and selling, and they will probably cause lasting damage to their assets. The Zillow real estate speculation debacle was a taste of what will happen at second-rate PE shops. About Zillow:

    https://www.foxbusiness.com/real-estate/zillow-sells-homes-shutting-down-house-flipping-business

    Cheers!

  9. rangoon78

    Am I banned?

  10. Ché Pasa

    It’s probably been more than a year since I wrote here about what was happening with real estate in my little corner of the wilderness. At the time, I noted that mobile and manufactured homes, new and vintage, were being moved on to vacant properties at a smart clip. And they were being lived in by migrants, mostly from the cities.

    That practice has continued and expanded. I’ve seen at least a dozen more emplaced on vacant land in the last year. One is quite a spectacular vintage mobile, painted brilliant turquoise, flamingos on the front, very MidCentury.

    There was a derelict mobile not far away that had sat there vacant and deteriorating for more than a decade. A few months ago, a family moved in and have been fixing it up, adding solar, getting rid of debris, and having a grand time. I don’t know them, but word is that they are Christianist Trumpists (wonderful…), preppers and doomers, and believe that they’ll be safe here when the Rapture comes.

    So far not a single new stick built house has appeared in the vicinity, but several old ones have been renovated and sold for what to us are enormous premiums. And they are lived in. None are vacant. So far as I know, none are rentals. They are all lived in by owner-families.

    On the whole, I’d say real estate values have much more than doubled out here since the start of the pandemic, and last time I checked Realtor.com, there were only four places/houses not already under contract.

    Migration from Texas is not what it was for a while. Nearly all the newcomers I know anything about have come from elsewhere in New Mexico. This area, I guess, is considered “safe” — or at least safe enough — come what may.

    I still say water is the chief issue, though. If the wells run much drier, nobody will be able to live here.

  11. different clue

    @Willy,

    In answer to your observation that . . . ” Yet I don’t (fully) understand why people cling so tightly to their dysfunctional viewpoints. ” . . .

    I was reading some William Burroughs once ( don’t remember specifically what ) and read what he claimed to be an interview from somewhere. It might just be something apocryphal that he made up. But he said that somebody once asked a paregoric addict who had lost everything to his paregoric habit why he didn’t finally just give up paregoric, and the addict said: ” I gave up my wife for paregoric. I gave up my job for paregoric. I gave up my home for paregoric. I gave up my children for paregoric. You want me to give up paregoric? Now, where would I be if I give that up too? “

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