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Inflation reached a 40-year high as a result of the consumer price index’s 7.9% year-over-year growth. The cost of a building goes up as a result of inflation’s impact on the materials and labor required to develop a rental home, which drives up housing costs overall. Mortgage interest rates will increase in 2022 as the Fed continues to tighten its monetary policies. The multifamily industry may be impacted by this trend in several ways.
A person or family may choose to purchase a home or move into the rental market depending on the mortgage interest rate for a single-family home. Due to this, demand for rental homes—including communities of single-family homes—increases (D’Acunto et al., 2021). Along with interest rates, the cost of funding new development has increased for developers wishing to build new rental units. The difficulties with supply chains, construction, and delays become even more expensive as a result.
The unemployment rate has the second-largest impact on US rents after impulsive effects. In each of the three prior quarters, the change in the unemployment rate was strongly inversely correlated with the inflation of rent (D’Acunto et al., 2021). The Phillips curve, a cornerstone of contemporary economic theory, is supported by the research findings (D’Acunto et al., 2021). Given the implications of COVID, policymakers must understand that they are still forced to choose between a healthy labor market and rising rents.
Based on the aforementioned information, I think that renting a home might be a significant issue for college students these days. Record inflation leads to a variety of other issues, such as higher prices or worse financial conditions. Though it is virtually at its pinnacle during the previous 40 years, as usual, we may anticipate a decline in inflation in the years to come. You must also take into account the current epidemic and unemployment’s significant effects.
Reference
D’Acunto, F., Malmendier, U., Ospina, J., & Weber, M. (2021). Exposure to grocery prices and inflation expectations. Journal of Political Economy, 129(5), 1615–1639.
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