In previous posts I have highlighted a range of dodgy housing statistics, or the silly misuse of rental data. I argued that the “asking rent” statistics are inflated, unreliable and only capture a small portion of the market. While state government data based on rental bonds is a better indicator of the rent prices for new tenancies, that data says nothing about the rents paid by existing renters – data which itself is rare and unreliable. But there is more at stake in the comparison of rent prices data than just statistical accuracy.
The comparison of rent prices
The table below shows the difference between the data sets on median rent in metropolitan Adelaide in the March quarter this year. Again, the estimates of asking rents are way above the actual median price of new rentals (in the SA Housing Trust data). But those new rental prices are themselves way above the actual median of all rents in Adelaide in the quarter. That median for all renters is represented by the bottom three lines of the table – the first two using and updating the census data from 2021, while the bottom line utilises a recently released rare ABS data set of the base prices in the CPI for private rentals across the state (that is, without public housing and the Commonwealth Rent Assistance, which is usually included and lowers the standard CPI number).
The table provides pretty clear evidence as to why it is silly to pretend that the price of new rentals is what all renters are paying.
Time Series
Similar patterns and issues emerge when we consider changes over time. Again, the recent ABS data set is particularly useful here because it is focused only on the private rental market. This provides a more accurate comparison of rent prices with the bond data on new private rentals, while the exclusion of CRA enables a direct comparison of market prices (rather than the prices paid by consumers – as in the usual CPI data). The graph below and shows the comparison for South Australia as a whole, but also includes the standard Adelaide rental CPI (which includes public housing and CRA).
Unsurprisingly, the graph shows that since 2020 rents in the private rental market have increased much more rapidly than the standard CPI Adelaide rent figures (which include public housing and CRA). Perhaps more interestingly, the graph also shows that the prices of new rentals (from the bond data) have gone up by more than the Private Rental Market CPI which accounts for existing rentals. The new rental prices are more volatile than the CPI data, and the trend is not uniform – the median price of new rentals increased faster than all rents in the 18 months prior to December 2021, and in most June and December quarters in subsequent years. The gap closed in other quarters, although the overall difference is perhaps under-estimated by the fall in median rent bonds in the March quarter this year – which may or may not be sustained.
What the graph does suggest though, is that in the short term the changes in rent prices for new rentals may not be a good reflection of what is happening in the rent market as a whole. Further, in the long term, the focus on new rentals tends to exaggerate the increase in rental prices across the whole private rental market.
What is a stake in the comparison of rent prices
These differences matter. In the previous posts I suggested that the differences in data sources matter because mis-use of data leads to silly statements that detract from the credibility of important advocacy on housing policy. However, the data differences also matter because statistics don’t simply reflect reality (either accurately or inaccurately) – they shape it.
The asking rent data is produced by commercial organisations largely for the use of property interests who are likely to pay for the detailed analysis, so the higher prices in the asking rent data provides good news for their target audience. But more importantly, it inflates landlord expectation across the market. If you are a landlord charging $480 for rent, and then you read stories of median rents of $620 a week, you might feel justified in increasing rents.
Obviously there are objective factors driving some increases in rents (e.g. interest rate increases – a theme I will return to in a future post), but unless we want to pretend that landlords are the rational automatons of first-year neoclassical economic textbooks, we should expect subjective judgements to have a role in economic decision-making. How much of a role is the stuff of economic debates from Marx to Keynes to neoliberalism. But at a minimum, I think it is fairly safe to suggest that having industry analysts advertising data about market rents that are well above the actual median rent is unlikely to help renters.