Housing Rents and Bubbles
By Arnold Kling
Rents are rising again across the country, squeezing tenants who are already coping with high gasoline prices and improving returns to landlords after a deep five-year slump.
The turnaround appears to be another sign that the boom in house prices and sales is finally slowing, as homes have become so expensive in many metropolitan areas that some people have decided to rent instead.
I do not share this interpretation. If rents are indeed rising, then to me this tends to contra-indicate a bubble. In a bubble, speculators buy houses because they expect prices to go up. This leads to excess supply, which drives rents down. Owners are willing to accept lower rents because they expect higher appreciation.
I would not expect to see rising rents as the bubble is slowing. I would expect to see rising rents after the bubble pops–or if there is not really a bubble to begin with.