What has caused 10-20% rent growth and will it last?

[Bobby Larsen]

I don't think I've been this cautious in a long time. I think there are still good opportunities but some markets are just bonkers. I'll caveat this by saying it's not just real estate, all investable asset classes seem risky at the moment. In order to forecast what the next 12, 24, 36 months will look like in the multifamily industry, I've been asking myself what the catalyst was for 10-20% annual rent growth across what seems like the entire country.  Population growth, employment, wage growth, supply, etc. all have been following the same 5-year rolling historical average, so why the big jump in prices and rent this year?  I have some thoughts but very interested to hear from other experienced operators.

[Bill B.]

I didn’t even think of @Charles Seaman 2 answers, or at least not first.

My first 2 were more and more regulation is driving “mom&pop landlords” (85% of rental property owners own less than 10 properties.) to sell their properties to owner occupants, driving down available inventory. (Sales inventory is down 90% give or take, how much is rental inventory down? Don’t forget, every eviction prevented is one less unit available and we’ve heard for almost a year about the millions “at risk”. Those that are left are pricing in the risk of their tennant not paying in the future. Turns out actions have consequence, maybe even “Unintended consequences” I think I read that somewhere. 

So you’ve got 4 reasons already. I’ll toss in a bonus one. If you own a $200k property bringing in $1200/mo you’re probably doing ok by most metrics. But if 5 years later that property is worth $400k and it’s brining in $1300/mo you might figure out you earned 12 years of rent in appreciation if you sell, and maybe that’s 50 years of rental income. 

So. Unless you think inflation will magically go away, the federal government will stop spending trillions it doesn’t have, the local governments will stop trying to buy renter’s votes by giving them more and more “rights” I don’t think prices can do anything but skyrocket. Is a 20% rent increase unexpected in a world where gas prices are up 50% and people are asking for a 100% increase in the minimum wage?