Rental Housing in the 1970s
Searching for the Crisis
Recent public discussion of the "rental housing crisis" reflects two widespread beliefs: (1) that rental housing is in short supply, and (2) that rents have consequently risen faster than renters' incomes. Analysis of recent price changes in the rental housing market yields strong evidence that market conditions have been badly misinterpreted, mainly because general price inflation has masked real changes in the production and consumption of rental housing. Between 1970 and 1980, the full cost of a fixed bundle of rental housing services increased by 103 percent, but the consumer price index rose by 113 percent during the same period, indicating a slight decrease in the relative price of rental housing services. The cost of supplying rental housing services rose much faster than did rental revenue. The only satisfactory explanation for the declining operating return to rental housing is that an excess supply of rental housing prevents landlords from raising rents to compensate for cost increases.