How Multifamily Rents Stand Up to Inflation

A study from Middleburg Communities takes a closer look at the correlation between rental prices and economic pressures.

Policies enacted by the federal government over the last several months to support the economy during the pandemic have led to worries about an increase in inflation in the future, particularly in the medium to long-term. However, historical data has shown that rent prices can effectively impede inflation, according to a report by Middleburg Communities.

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With the passage of trillion-dollar stimulus legislation in March, the Federal Reserve cutting interest rates to nearly zero percent, and the volume of securities held by the Fed increasing from $3.8 trillion in January to $6.3 trillion in August, there has been a “rapid rise” in the overall money supply in the U.S. and in the federal budget deficit, which is projected to reach its highest percentage level of GDP since 1945, according to the report.

All of these measures by the government have created the potential for future inflation. However, with uncertainty over the length and scope of the COVID-19 pandemic, more stimulus measures are likely to pass, leading many economists to predict there will not be a significant rise in inflation in the near future.

However, in the event that there is, it’s likely that multifamily will weather the storm well.

Average Annual Rates of Inflation and Rent Growth, 1973-1983 (Sources; Bureau of Labor Statistics, FRED, American Housing Survey). Image courtesy of Middleburg

In the report, the Virginia-based investor and manager of multifamily properties studied data from the last period of high inflation in the 1970s and early 1980s. Using multiple sources of data and measurements, researchers found that multifamily was a resilient asset class. Despite low job growth and high unemployment, apartment rents kept pace with inflation during the highest inflationary period in recent post-war history.

“With more information and modern ‘daily pricing’ tools at their disposal, today’s property managers are even better positioned to respond to inflationary pressures than they were forty to fifty years ago,” Middleburg concluded in its reported.

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