Monday, February 28, 2011

Inflation-adjusted rents for single-family/condo units declines

The Denver-Boulder-Greeley CPI increased 17.6 percent from the third quarter of 2001 to the third quarter of 2010. Over the same period, the average rent for single-family homes and rental condos in Denver metro increased 8.9 percent. In other words, average rents did not keep up with inflation over the past decade.

Here we see average rents in single-family homes and rental condos in metro Denver. Rental data is current through the fourth quarter of 2010 and is based on Division of Housing data:

If we adjust for inflation, we see that from the third quarter of 2001 to the third quarter of 2010, real rents declined from $955 to $884, a change of -7.3 percent. The decline in real rents was especially severe from 2003 to 2006 as large amounts of new home construction continually added new housing stock to the market. It was also unusually easy to finance a new home purchase during this period, so overall demand for rental housing declined and pushed down real rents.

Note: the Denver-Boulder-Greeley CPI is only released twice per year, so CPI values are not available for every quarter in which rents are measured.

As a final note, however, we should consider movements in median incomes, as compared to rents. The houshold income data provided by the Colorado Department of Local Affairs shows that incomes, when adjusted for inflation, have also been declining. In the third chart we see that median renter incomes declined 20 percent from 2001 to 2010, while homeowner median incomes declined 6 percent.