Tech City Rent As A Measure Of Inflation

I am a little fixated on inflation these days. I look at modestly obscure sources of data to try to track the old bitch so when I read an article on average apartment rents in tech city markets, I had to bring it to your attention.

Let me cut to the chase.

 1. Rents went down a little during the pandemic. The general sense is that rents went down about 5% nationwide.

 2. With the advent of the vaccine, rents began to turn around and climb upward as folks began to return to offices and the migration to tech meccas resurged, and folks began to quit jobs to get better jobs (and better apartments).

Rents are up 25% in Austin By God Texas. Hello, America, can you say INFLATION?

Austin By God Texas

I once owned thousands of apartments in Austin (San Antonio, Houston) because I was a buyer and renovator of larger apartment complexes back in the 1980s/90s. It was a very good business and was an inflection point in the strategy as I was primarily an office guy with a several high rises under my belt and quite a few substantial office rehabs.

I tell you that because I have an intimate knowledge of the apartment market: costs, the revenue, and how quickly it moves. The kind of knowledge that cannot be bullshitted away. I know this stuff.

Here is what has happened in Austin.

 1. Before the Pandemic, average Austin rents were at $1,367. This is for a one bedroom apartment and across the swath of A/B units. So, not at the top end.

As long as the methodology of creating the numbers is consistent, it doesn’t really make any difference because we are studying the trend.

 2. The Pandemic trimmed the rents to $1,300 — about a 5% haircut.

 3. Rents have now risen to $1,647 as of September — a bloody 25% increase. That’s right 25% increase.

I cannot imagine what is going to drive these rents down short of a war or another pandemic. The inbound growth coming to Austin is staggering.

All the big tech players are moving here. Everybody.

Note to self: Look into apartment REITs.

How about the rest of the country, Big Red Car?

Allow me to give you the comparative numbers:

 1. First, average rents in 31 of the 50 biggest metropolitan statistical areas in the country are up by DOUBLE DIGIT percentages Year Over Year. This is fact, Jack. 

 2. A comparable current rent amongst other tech meccas is:

Boston – $1,895

Chicago – $2,500

Denver – $2,850

Los Angeles – $2,095

San Jose – $2,517

Seattle – $2,895

Washington, DC – $3,015

New York City – $2,075 <<< I don’t believe this.

San Francisco – $1,695 <<< I don’t believe this.

I frankly don’t believe some of these numbers, but as you can see Austin is the cheapest alternative and Austin is far hipper — might be some bias at work there, you’ve been warned.

So what, Big Red Car, what’s the point?

The point is this, dear reader: A good number of folks with suspect agendas (talking to you, Sec Treas Janet Yellen) are suggesting that inflation will return to 2% by the second half of 2022. This is in spite of a 5.4% CPI print and an 8.6% PPI increase.

How? Nobody is providing any evidence as to what is going to force inflation down.

As to apartment rents — no way. Landlords do not lower their rents ever. I know. I set the rents on thousand and thousands of apartments in Austin, San Antonio, Houston.

I never had a conversation about lowering rents. Ever. I was always pushing the rents upward and I always got the increases to stick.

In a place like Austin By God Texas with the entire state of California moving here (the last person to leave Cali, remember to turn out the lights), Austin rents are NOT going down.

Bottom line it, Big Red Car — college football today

Fine, dear reader, know this:

 1. Inflation — the Consumer Price Index — is composed of many different facets. Right now gasoline, energy, food, and rents are way up. Every single component us going up.

Hunter Biden’s painting prices are going up.

 2. There is not a single bit of evidence to support the notion that inflation is going to commit Hari-kari (Seppuki, Japanese ritual disembowelment).

 3. There is not a single bit of evidence that identifies any external force that is going to force prices down. Those shipping companies going to lower their prices when the supply chain is constipated with product?

I have a completely open mind, I am a wanderer drawn to the truth — please tell me what I have missed. Thanks.

 4. Inflation is here and it takes a long time to drive it lower and it always entails higher interest rates and real pain.

Talking to you, Jimmy Carter, and your bloody 20.5% Prime Rate and decade long malaise. Talking to you, Barack Obama, and your “slowest recovery in history.”

Turning the economy around will take a long time and it will entail pain.

Fact: Pre-pandemic we had the BEST economy since the American Revolution.

 5. Gas prices alone are a huge component of inflation and they are not coming down since we destroyed American energy independence and went back to begging the Saudis to increase production. This was a grievous, self-inflicted policy error, not a foot fault. We — talking to you scrappy kid from Scranton — did this to ourselves.

Here is a chart of gas prices from the Bureau of Labor Statistics. See what drove prices down historically — recessions. Bad times. Really bad times. Pain.

If someone tells you that inflation is going to be 2% in the second half of CY 2022 ask them WHY? Make them provide evidence because all the evidence I can find says, NO BUENO.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Hook ’em, Dawgs!

Bonus fact: Renters sign one year leases typically. One of the reasons why apartment rents are not coming down is because of the term of the leases. Think about that.