Phoenix's soaring rental increases are missed in inflation measurements, analysis finds
The U.S. Labor Department on Wednesday reported that consumer prices rose 5.4% for the year ended September, and inflation is at its highest level in more than a decade. Supply-chain slowdowns from the COVID-19 pandemic are driving consumer prices even higher on everything from food to clothing to gas. The rent is also rising, and in Arizona, it is rising faster than anywhere else.
Molly Boesel is an economist at Core Logic, a housing analysis firm. She said single-family rents increased 19% in Phoenix in one year — from July 2020 to 2021. That’s the fastest of more than 100 metro areas the firm looks at and at more than double the national rate.
“They weren’t really prepared for this increase in demand last year,” she said.
Boesel said housing makes up about 30% of core inflation, a measure based on the CPI (Consumer Price Index) and that number is underestimated right now, not reflecting actual rental costs. Boesel says Phoenix’s actual inflation rate is actually higher than the CPI shows and is also expected to increase for the remainder of this year and into next year.
“Well, when their inflation is going up, there’s just less money left over for all of the other things they need to spend money on. Maybe they need to delay purchases and focus on their core expenses,” she said.
One reason she sees rents increasing so much in Arizona is the population growth. Out-migration from higher cost, higher taxed states like California, welling over into Arizona is taking up the available rental supply.
“Especially if you’re seeing prices increase because people are moving in from out of state, you know that’s where it becomes more difficult for your longer-term residents to continue to afford the rents they have,” she said.
It’s a trend that’s been going on for at least two years, according to CoreLogic’s analysis. “You don’t just turn on a dime, you know, there’s a lot of preparation in home building, so there wasn’t that kind of pipeline, I guess I’d call it, of building ready to go. So as more building occurs, you will see things start to ease up,” she said.
Boesel says building new apartment homes to ease the pressure takes time.