Where Disposable Income Goes To Die: Since 1990 Real Rents Are Up 15% While Median Incomes Are Unchanged

Tyler Durden's picture


To the Fed's Janet Yellen, runaway inflation - at least that which can not be "hedonised" away by the BLS like iPad and LCD TV prices - may be simply "noise", which probably explains why she doesn't rent. But for the record number of Americans who are forced to rent as house prices are too high for the vast majority of the population while mortgage origination has tumbled to record lows (as banks can generate far higher returns on reserve by buying stocks than lending out said money), inflation is going from bad to worse. Case in point: as the WSJ shows, since 1990 asking rents - in real terms i.e., adjusted for inflation - have increased a whopping 15%. The change in median income over the same period? 0%.

This means that all else equal, the average American has 15% less disposable income after factoring rent compared to 24 years earlier.

And since the demand for rental properties will only go up as even parent basements are getting full, it means the already record high rent prices will duly follow, taking even bigger chunks out of US disposable income, and thus, that part of the US economy, some 70% of it, which depends on consumer spending. The beneficiary? The personal bank accounts of owners of rental properties... such as BlackStone - America's largest landlord.

Sure enough, as WSJ confirms, "apartment landlords continued to push through hefty rent hikes in the second quarter, squeezing U.S. households that already are struggling financially after four years of steady increases."

The average monthly rent for an apartment rose to $1,099 in the second quarter, up 0.8% from the first quarter, according to data to be released Wednesday by real-estate research firm Reis Inc. That was the 18th consecutive quarter of rent increases. For the 12-month period ended in June, rents rose 3.4%.

No, it's not just a New York phenomenon. It's everywhere:

Effective rents—which tend to be lower than asking rents—were up in all 79 U.S. metro areas tracked in the Reis report. West Coast cities that have been the model of recovery continued to top the list of highest rent growth for the quarter and over the past 12 months.


Rent growth exceeded 6% over the past year in San Francisco, San Jose and Seattle.


Even cities that aren't normally associated with fast rent growth, such as Charleston, S.C., and Nashville, Tenn., posted strong growth over the year, up about 5% or more for the year.

To some, renting as the new owning is equivalent of a recovery: "You have definitely seen that recovery now spread to all of the major markets around the country, even if some of them were laggards," said Ryan Severino, an economist at Reis. "It's a very pervasive recovery."

Actually, what it is, is a pervasive confirmation that the Old Normal American Dream is over. As for the new one, renting, even that will soon be out of the reach of most.

Economists said the growing demand for rental housing partly reflects changing preferences among younger renters, who tend to prefer urban areas. But the demand for rentals also reflects tight mortgage-lending standards that have shut out potential homeowners from the market.


"If you can't get into a single-family house and you can't get a mortgage, well, you don't need a mortgage to get an apartment," said Stephanie Karol, an economist at IHS.


But household incomes have stagnated, resulting in a financial squeeze for a growing number of renters. Median household income was $50,017 in 2012, below 2007's peak level of $55,627, after adjusting for inflation, according to U.S. Census Bureau data.

So what is the alternative? Well, just "charge it"... as increasingly more Americans are doing, and as the subprime lending bubble of the 2007 period is meticulously recreated, one can say with 100% certainty that the consequences will be identical.

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Wed, 07/02/2014 - 10:49 | 4917700 Chief Kessler
Chief Kessler's picture

Hello Ladies!!

Wed, 07/02/2014 - 10:50 | 4917704 Chief Kessler
Chief Kessler's picture

Who is this handsome man?

Wed, 07/02/2014 - 11:24 | 4917822 max2205
max2205's picture

Seriously...15% since 1990....that's nothing

Wed, 07/02/2014 - 12:29 | 4918078 Woodyg
Woodyg's picture

Not buying the 15% at all -
At least in portland Oregon -
When I got out of college in 1991 i rented a 3 bedroom house for $650 - that house today rents for $1750.
Houses that sold for. 45k in the mid 80's are now selling for 700 k -
Maybe someone can show me math where those increases add up to 15%
Actually in those numbers you'll find the death of the American Dream.
But I blame Nixon for opening China and taking us off the gold standard.
(The final nail in the coffin of the gold standard).

Wed, 07/02/2014 - 13:57 | 4918474 bonin006
bonin006's picture

They probably mean rent is up 15% more than official inflation over that period.

Wed, 07/02/2014 - 14:04 | 4918504 zaphod42
zaphod42's picture

You don't get it.  Everything adjusted for inflation.  Wages are up, but not inflation adjusted, from 1990.  At least not for the middle and lower classes.  

On the other hand, check this out: 



Wed, 07/02/2014 - 11:03 | 4917742 doctor10
doctor10's picture

Yeah? Only 15%?  'health insurance" -oops "Health Tax" is up for many several multiples of 15% just in 6 months.

The latter has far more to do with the vanishing of disposable income-and hence GDP -than "rent"

This sounds like a bunch of insurance companies-in league with the Feds -pointing fingers away from themselves

Wed, 07/02/2014 - 11:20 | 4917804 NoLongerABagHolder
NoLongerABagHolder's picture

Median income is a farce stat to twist numbers to make the author's point. It is the number that separates the upper from the lower half. Even though the median is flat, total income "could" be higher, thus this comparison of rents and median income is worthless. Example:

11 people income:

10,10,10,10,10,5,1,1,1,1,1 = total income $60 and median is $5

9,9,9,9,9,4,3,3,3,3,3 = total income $64 (higher than example above) and median is $4 - lower than example above.

Typical ZH to highlight examples to "make a point" without truly giving a clear picture. Just a scary headline hoping people are lazy to check the "facts."

Lies, Damn lies, and stats......

Wed, 07/02/2014 - 12:12 | 4918005 tarsubil
tarsubil's picture

So this change in median is due to radical change in distribution to the lower half? It is the exact opposite of your hypothetical. Stop with your bullshit.

Wed, 07/02/2014 - 13:30 | 4918344 NoLongerABagHolder
NoLongerABagHolder's picture

No Mr. Brilliant..... I am not concluding that the lower half had their income rise. You, like most ZH lovers, have that constant negative bent when you read something. The point of the post was that MEDIAN is a crappy number to use. I could have started the first example off with the lower half at $2 and then adjusted the lower half down to $1 and still had a lower median and higher total income.

Point being, they should have made the same point with a better data set, but instead chose to alarm everyone with crappy data.


Crawl back in your bunker..... nothing to worry about from this article.

Wed, 07/02/2014 - 10:53 | 4917708 NoDebt
NoDebt's picture

Can I just get the government to pay my rent?  I feel like it's a basic human right to have my own place.  I have such good intentions, you really need to give it to me.  RIGHT FREAKING NOW!  I'm not kidding.  If you don't give it to me, you're a racist.  You owe it to me.  I was promised!

That's about how it'll go, no?

Wed, 07/02/2014 - 11:44 | 4917903 The Navigator
The Navigator's picture

Yes you can (get your rent paid by gov) - Section 8 housing

Wed, 07/02/2014 - 16:00 | 4919003 daveO
daveO's picture

Whos' dumber, a Section 8 renter or landlord? 

Wed, 07/02/2014 - 10:54 | 4917714 Bangin7GramRocks
Bangin7GramRocks's picture

Keep pushing through these rent increases slumlords! I'll just laugh my ass off when you have buildings full of non-paying squatters.

Wed, 07/02/2014 - 11:00 | 4917732 Son of Loki
Son of Loki's picture

Been there, done that lost $18k on damages and $6k attorneys' fees to get them out. I'd much rather make my money tapping buttons on the computer buying/selling stawks and commodities then the crap you have to go thru being a Landlord. Ain't worth it imo and as the RE market corrects and joblessness continues it's going top be a ruff ride for landlords I suspect, esp the absentee ones who have to pay thru the nost for some management company 1,000 miles away to run that rental.


Don't forget soaring property taxes, insurance, maintenance, etc.

Rotsa Ruck!

Wed, 07/02/2014 - 15:58 | 4918997 daveO
daveO's picture

My sympathies. Look at rent control in NYC in the 1970's. We have the recipe for the same landlord abandonments created by low income and all the resaons you cited. I suspect many areas will look like Detoilet. Check out the website Goobing Detroit. Deadbeats will then forced to go to Wally World to buy a tent, their next home. I wonder if W.W. will still give them a refund after they tear that up, too.  

Wed, 07/02/2014 - 11:42 | 4917887 RafterManFMJ
RafterManFMJ's picture

Not a problem. I've already got this Saudi named Goldberger on deck to fly a cessna into my apartment building. Insurance, baby!

Wed, 07/02/2014 - 10:55 | 4917721 Osmium
Osmium's picture

Maybe that explains Blackstone buying so many houses.  Consumers have no disposable income left.

Wed, 07/02/2014 - 14:30 | 4918626 Miffed Microbio...
Miffed Microbiologist's picture

I imagine Blackstone is simply trying to be the modern version of Mr Potter in Its a Wonderful Life. The problem is we have not George Bailey on our side.


Wed, 07/02/2014 - 11:00 | 4917735 djrichard
djrichard's picture

This is what you get when you have a bubble economy and instead of letting it go down in ashes we instead rescue the asset prices and debt behind it.   Result is that the debt needs to be paid with the salaries that never went anywhyere.

How fortunate for the banks and the powers that be that it worked out this way.  One would almost imagine that this was the intent.

Wed, 07/02/2014 - 11:01 | 4917736 Took Red Pill
Took Red Pill's picture

I believe it. Three of our kids are over 18 and still living at home. It is tough out there!

Wed, 07/02/2014 - 11:10 | 4917746 alien-IQ
alien-IQ's picture

Even "adjusted for inflation", that 15% increase seems way way short of the mark.


If they are using the official government advertised rate of inflation, the numbewrs they arrived at are meaningless. And judging by the figures they arrived at, that's precisely what they used. In short: Total Bullshit.

Wed, 07/02/2014 - 11:13 | 4917782 Sudden Debt
Sudden Debt's picture

It's for the kids...

I wonder if they will ever be able to actually buy a house themselves when they grow up...

Wed, 07/02/2014 - 13:58 | 4918479 zaphod42
zaphod42's picture

Shit.  Stop wondering.  They won't.


Wed, 07/02/2014 - 15:52 | 4918974 daveO
daveO's picture

Yes, if Blackstone and friends don't buy them all. The market will crash with the least little rate increase. 

Wed, 07/02/2014 - 11:21 | 4917812 Flakmeister
Flakmeister's picture

R > G, bitchez....

Wed, 07/02/2014 - 11:42 | 4917896 praps
praps's picture

Great for 0.1% who own the majority of the US.  All they have to do is collect more and more rent.  Then spend it on buying more land, stocks, bonds.  Rinse and repeat.  

This is how the middle class slowly disappears.

Wed, 07/02/2014 - 12:05 | 4917977 Flakmeister
Flakmeister's picture


Wed, 07/02/2014 - 11:59 | 4917955 Seasmoke
Seasmoke's picture

Wonder what the "Rent is too Damn high" guy, thinks about this. 

Wed, 07/02/2014 - 12:06 | 4917980 tarsubil
tarsubil's picture

Don't worry. We "fixed" this by putting that 15% on a credit card.

Wed, 07/02/2014 - 12:13 | 4918010 gaoptimize
Wed, 07/02/2014 - 12:30 | 4918051 Shizzmoney
Shizzmoney's picture

Moonlanding here

Yellen says there is no inflation, that the data is "noisy".  So all of this is mute (to those who run the Central Bank, which really frightens the fuck out of me).

BTW this is why the kids are still at home with the parents; not only are they in debt, but even those not swamped in debt are feeling the pinch of stagnating to lowered incomes offset by skyrocketing rents.  Folks are having a hard time getting enough roommate for rent and utilities, nevermind the chance to live on their own.

Wed, 07/02/2014 - 12:52 | 4918180 Max Cynical
Max Cynical's picture

since 1990 asking rents - in real terms i.e., adjusted for inflation - have increased a whopping 15%.

There's the rub..."adjusted for inflation". This is a worthless analysis if they're using a false inflation assumption.

Let's see their analysis adjusting for 6-15% inflation.


Wed, 07/02/2014 - 13:50 | 4918447 honestann
honestann's picture

Yup, I've been pointing this out in ZH messages for years.


Yet the predators-that-be openly and brazenly continue to do everything possible to... boost home prices, which invariably boosts rent prices too.

Low prices are GOOD... for both individuals and for the overall economy (to the extent there is such a thing).

The fact that low home prices (and low rent prices) == GOOD is so completely simple, and so obviously true... that anyone with even a tiny bit a alertness and common sense has to recognize the entire "economy" has been operated for the benfit of the predators-DBA-banksters for decades.

If an alien from outer space visited earth, then went back and explained how a few dozen predators control virtually everyone on the planet simply by printing worthless pieces of paper, and tapping a few keys on a keyboard, his fellow aliens would never believe him.

Seriously, no sane sentient being could possibly look at the facts and fail to notice how completely absurd this situation is.  Sadly, very few sane sentient beings exist on planet earth at this point in history.  What a waste, mankind is.

Wed, 07/02/2014 - 15:50 | 4918957 daveO
daveO's picture

The insanity went into overdrive in '96 or '97. That's when the FHA lowered their standards. I was renting out houses then and found all the good applicants getting houses for little difference in the down payments and my deposit. Now, that they've lost their 'free' housing they have to pay someone to clean up after them. No sympathy for them. They received 10 years discounted housing courtesy of the FED GOV. If someone 's never bought a house, wait a few years. Stay at home and save your money.

Wed, 07/02/2014 - 13:58 | 4918477 the grateful un...
the grateful unemployed's picture


the housing bubble is back, as 

For 575,000 homes, or 68 percent of those in the county, assessed values will rise less than 0.5 percent because of Proposition 13, which California voters passed in 1978. The measure mandates that property values for tax purposes cannot grow more than the California Consumer price Index or 2 percent, whichever is lower. Last year, the California Consumer Price Index, which measures inflation, was less than 2 percent, so owners that were not given a break on property taxes during the housing crisis will see that smaller increase reflected in their tax bill, which is 1 percent of assessed value plus any local charges.

California CPI essentially mirrors the BLS stats, which all show equivalent rents running lower than housing price increases. however its a neat connundrum, rentals prices increase, tax rates increase, landlords raise the rent. as long as it remains in the goldilocks range of about 2% the Fed should be happy about that. 6% is another matter.

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