Do rental rates keep up with inflation?

Question

I'm curious if some long time investors could chime in on their experience with rental rates keeping up with inflation (CPI). Obviously there are a lot of factors that can affect rates over a 20 year period or so. The neighborhood could get better or worse, the city could grow causing moredemand etc. I guess I'm just looking for a general summation that over a 20 year period if you took all the markets and averaged the rents would they keep up with government reported inflation? I'm not sure if there is a good set of data out there that woudl tell us that?

Thanks,

Andy Chu · Answer

This definitely depends on location. Rents in our area for 1500 sq ft 3 bd/ 2bath was for 800 in 1988. Assuming a 3% inflation rate it would be 2.03x rent price (1.03^24). This would put target rent at $1,626.23. Unfortunately, rents for a similar house goes for about 1100-1200.

Mitch Kronowit · Answer

We have one property that we purchased 20 years ago, however, I first bought it as a primary residence. We didn't begin renting it out until the late 90's. Since then the rent on the place has almost doubled.

Jeff S. · Answer

On a micro scale (5 units) my rents have increased 99% over 20 years. Unfortunately, my current rents are low compared to Portland market.

Rents are moving quickly up since rents have lagged price appreciation, and building all but stopped. Going forward looks very good.

It totally depends on the area though. With high vacancy like many areas, rents are down.

Brian Levredge · Answer

I don't have 20 years of rentals under my belt but I can tell you that 42% of the CPI (last I checked) was comprised of housing and that the Fed used market rents rather than mortgages to determine the cost of housing. That's a pretty big chunk so I would think they would pretty closely mirror each other on a national scale.

Bryan Hancock · Answer

Which inflation set?  The government changes it every decade or so which makes it a bit difficult to compare apples to apples.