Renters in all price brackets are being handed rent increases, but those at the bottom-end of the housing market are getting hit hardest.
"Rent inflation is consistently higher for lower-cost housing units than it is for higher-cost units," Jonathan McCarthy and Richard Peach, researchers at the Federal Reserve Bank of New York's research and statistics group, said in a recent blog posting.
The researchers examined data from the American Housing Survey's (AHS) national samples for 1989-2013 to estimate inflation rates for rents and utilities, and found "trickle-down" housing may bear the brunt of the blame for socking low-cost renters with proportionally larger rent rises. The AHS survey is done in odd-numbered years.
The researchers estimate that about 32 million dwellings were added to the market through new construction between 1989 and 2013. About 10.8 million targeted the highest income group, while only around 3.1 million were aimed at the lowest income group, the researchers' full paper said; incomes were divided into five groups.
More new units at the high end likely keeps the vacancy rates there higher, while less competition between tenants for units helps to dampen price inflation in that segment, the researchers said. So even though the actual rent may be higher, it's likely it won't have as large a percentage rise as lower-cost apartments.
This is because at the lower end of rents, supply increases are more likely to come from units that were previously offered at higher rent being pushed down to the next bracket, the researchers said. Those units are still more likely to have higher rents than the housing already in the lower end, pushing up price inflation for that segment, they said. Call it the "trickle-down" effect on rent.