The rent is too high. After historic surge, is relief on the way?

The landlord’s letter sat on her dining room table for three months. The rent on her two-bedroom Boston apartment was going up $300 a month. Then, Betty Lewis made her decision: She wouldn’t pay the increase.

So every month for the past four years, she has paid her 2018 monthly rent of $1,800 a month, ignoring subsequent increases and monthly fines for failure to pay.

“I was frightened. I was angry,” says Ms. Lewis, who credits a tenant-rights group, City Life/Vida Urbana, for giving her the courage to act. “It just gave me encouragement to fight back, and not sit back and let people run over you.”

Ms. Lewis is not just defying her landlord; she is in her own way fighting inflation – a problem that has grown to be Americans’ top economic concern. In less dramatic fashion, legions of other consumers are doing the same – moving in with roommates or parents and curbing their demands for products by dialing back on purchases. Companies fight inflation when they boost the supply of their goods and services.

Inflation is often portrayed as a huge, unstoppable force that even central bankers have trouble reining in. The reality is that by millions of decisions every day, consumers and businesses tilt the economy – typically toward equilibrium, albeit with things like pandemics, war, or loose monetary policy throwing things off-kilter sometimes. And in housing, at least, there’s progress. Rents are showing signs of plateauing. That doesn’t necessarily mean a U-turn toward housing affordability, but it does promise some relief.

In the near term, because of the way the federal government calculates housing costs, the progress is likely to remain obscured in official statistics well into 2023.

For example, today the government reported that rent surged to a new 40-year high, whereas several rent-tracking services suggest that the unprecedented year-over-year increases in the first half of the year are now over. Just as the price of single-family homes has begun to fall, rents also are plateauing nationally. 

“If you renew now, you’ve got the building owner in a really good position,” says Jay Lybik, national director of multifamily analytics for CoStar, which runs the apartment-finding website Apartments.com. Since the winter season is a hard time to attract new tenants, landlords are motivated to keep their current ones, he adds. “You can be like, ‘Hey, if you want to keep me, don’t raise my rent a lot.’”

High overall inflation – and housing’s role

While Thursday’s report showed the annualized pace of inflation easing a bit, it is still running at an unusually high 7.7% pace as of October. And inflation has popped up in many sectors of the economy, causing consumers to cut back on goods they find are now too expensive, such as:

• “A car, new or used,” says David Kurtz, an Illinois ad salesman in a social media message.
• “Plane tickets,” says Jessica Worful, an executive assistant in Michigan.
• “Almost anything in the grocery store, in a standard can or jar, that costs $5 or more,” says Sara Barnacle, a Maine retiree. 

Earlier this year, rent increases were through the roof – the economic equivalent of a 500-year flood, Mr. Lybik says. In March, the typical tenant with a typical apartment in a metro area was seeing an average increase of 17% over their previous lease, according to Redfin, a real estate search and brokerage services firm. In May, monthly rent for that typical apartment topped $2,000 for the first time. Such rapid increases are unprecedented in the United States since at least the 1940s.

“It makes my head spin,” says Dave Decker, founder of Decker Properties Inc., a real estate development and management company in Brookfield, Wisconsin. 

In fact, even with the plateauing trend, millions of households remain in financially tenuous positions amid high or still-rising rents. Especially low-income renters.

“I don’t know where to go”

In Lynn, Massachusetts, just outside Boston, a new owner took over Rita Martins-Beckley’s apartment building and in less than two years raised her rent by $400 a month and threatened to raise it another $100. Without an annual lease, the single mother of three is vulnerable to such moves, says Isaac Simon Hodes, director of Lynn United for Change, a grassroots community group.

“I don’t know where to go,” says Ms. Martins-Beckley, who earns $1,800 to $1,900 a month as an administrative assistant at a Boston hospital. Her rent now stands at $1,600 a month.

Banessa Quiroga in Elizabeth, New Jersey, got hit with a $500-a-month hike this past spring. A child care worker, she couldn’t afford the increase, so she took on another job and a tenant in her two-bedroom apartment to make ends meet.

“Despite billions in rental assistance, an estimated 200,957 New Jersey households remain at risk of eviction during 2022,” Make the Road New Jersey, a community organizing group, said in a report last month. The group highlighted Ms. Quiroga’s plight in its report. In her city of Elizabeth, where 3 in 4 homes are renter-occupied, the rent-control laws expire at the end of the year.  

Renewed calls for rent control

The rent squeeze has also invigorated the rent-control movement, at least in the five states where it’s still practiced. On Election Day, Pasadena, California, voted on Measure H, which would establish rent control in the city, potentially joining a string of communities in the state that have decided to apply the brakes to rent increases. But the vote is so close, it could take weeks of counting before it’s clear whether it passed. 

Such local moves control inflation, at least in the short term. Critics, however, argue that such laws do more damage in the long run by discouraging new apartment construction.

Even in states that no longer have rent control, affordable-housing activists are organizing for other types of relief. 

In Louisville, Kentucky, for example, rapid gentrification in the city’s West End has caused private investors to snap up properties and jack up rents, even on units qualifying for subsidized housing. The city in September saw rents rise 17.5%, the fourth-highest year-over-year increase of the nation’s major metropolitan areas, according to Redfin.

Shelia Nolan saw her rent go up from $77 a month (after federal subsidies) to $493, which accounts for more than a quarter of the $1,650 she receives monthly in Social Security and Supplemental Security Income for caring for her granddaughter. The whopping increase has forced her to rely on the food pantry rather than the grocery store, which means fewer fresh vegetables at mealtime, she says.

A local tenant-rights group is pushing for the city to pass an ordinance that would discourage the displacement of renters in the city’s historically Black neighborhoods by, among other things, pushing rents too high.   

Back in Lynn, an unprecedented coalition of three neighborhood groups rallied around the housing issue and lobbied the city for relief. On Wednesday, Mayor Jared Nicholson announced the city would use $5.5 million of federal stimulus funds it received for a community housing plan aimed at preventing displacement of low-income tenants and creating more affordable housing. 

Such inflation-fighting moves may ease renters’ burdens only at the margins. Nevertheless, there are clear signs that the rise in rents is easing. By September, rents were rising at an annual 9% rate, still very high but only about half the rise in the spring, according to Redfin.

Action from developers, employers

A big reason for that easing is that developers like Mr. Decker are bringing new apartments online at a rate not seen since the 1970s. It’s a sign of the economy’s equilibrium-finding process at work: A key indicator of demand (rising prices) is spurring a boost in supply. So many new apartment buildings are opening that it will take until the second half of next year before rents start rising again, estimates Mr. Lybik of CoStar.

Other companies are also alleviating the apartment squeeze and, in the process, fighting housing inflation. Some are stepping in to help their employees find cheaper housing, especially in high-priced and remote areas. 

On Massachusetts’ Cape Cod, a hospital and nursing home facility is getting final approval to build 48 housing units for staff. In Hana, on the Hawaiian island of Maui, where the median home price is $2.8 million, a small nonprofit hospital struggling to find workers is looking to build apartments for its staff. In Palo Alto, California, where the average rent already tops $3,000, Stanford University has bought a 759-unit complex to offer its employees housing.

The trend seems especially apparent in resort areas. Killington Resort in Vermont, which bought its first housing for employees in 2018, finalized its purchase of another lodge this April. Together, the properties will house more than 275 workers.

Official numbers lag behind the market

Despite these moves, the official inflation rate for rent in government statistics is unlikely to reflect any improvement for quite some time. That’s because changes in housing costs tend to lag price changes in other parts of the economy, especially using the federal government’s method of calculating the consumer price index.

“Although the markets are beginning to turn, for the next 12 months we envision yet continued higher elevated measures in the CPI,” says Judd Cramer, a Harvard lecturer and former staff economist for the White House Council of Economic Advisers during the Obama administration.

The problem lies in the way the Labor Department calculates housing costs. In March, when rent increases were surging by double digits, the CPI recorded a 4.5% year-over-year rise; in October, when rent increases had eased, it notched a new 40-year high of 7.5%. This lag has important implications far beyond housing. Because housing represents about 40% of the closely watched core inflation index, it means that officially the U.S. will appear to be struggling with high inflation for many months beyond what is really the case, economists say. In October, for instance, the rise in shelter (housing) costs accounted for more than half of the 7.7% of the overall rise in prices over the last 12 months. 

Such a perception could influence politics and policy – alongside the personal circumstances of housing costs, which for many still feel unaffordable. 

“I really want rent control for everybody, not just for me,” says Ms. Lewis in Boston. Massachusetts banned the practice in a state referendum in 1994. “You can’t do anything by yourself,” she adds. “You want to work together. ... You have to do this in order to get anything accomplished.”