In a presentation at a REALTOR® University Lecture Series, Dr. Richard Peach, Senior Vice President at the Federal Reserve Bank of New York, shared the results of an ongoing study on rent inflation, that lower-income households face higher rent inflation than higher-income households. The study was based on data from the American Housing Surveys from 1991 through 2014. Households whose total housing cost (rent plus utilities) rank in the bottom 20 percent (lowest 5th quintile) experienced double-digit annualized increase in rents in the range of about 10 to 20 percent. Meanwhile, households whose housing cost was in the top 20 percent (highest 1st quintile) experienced falling rents. Taking 2011-2013 as an example, total housing costs increased 12.9 percent for the lowest 5th quintile compared to a decrease of 1.5 percent for the highest 1st quintile (see Table 1).
Also, households who are in the lowest 5th quintile in terms of housing cost are more burdened than households in the top 1st quintile. Taking 2011-2013 as an example, in households who typically paid rent of $350 and utilities of $66, housing costs accounted for 19 percent of total expenditures. In households who typically paid rent of $1,535 and utilities of $146, housing costs accounted for about 10 percent of total expenditures (see Table 2).
Dr. Peach proffered a possible explanation: new units (rentals and occupied homes) coming into the market are taken up first by higher income households, with a decreased supply left for low-income households.
Why This Matters to REALTORS®: Strong demand for rental units has pushed up rents to an annual pace of close to three percent in the first half of 2015 while overall inflation has stayed near zero and personal incomes have increased at about two percent. Rising rents can have a negative impact on home ownership because renters are able to save less for down payment--even as higher rents make owning a home a better alternative. REALTORS® may want to remind clients of the FHA option, which permits significantly lower down payments than are normally seen for credit worthy buyers.
 Dr. Peach is Senior Vice President, Macroeconomic and Monetary Studies Function Federal Reserve Bank of New York The study is co-authored by Jonathan McCarthy and Matthew S. Ploenzke. Dr. Peach made a disclaimer that the views he expressed are his own and do not necessarily reflect those of the FRBNY or the Federal Reserve System.
 Based on the Census’ Bureau’s Current Employment Statistics (CES) Establishment Survey, the average hourly earnings in 2014 was $24.46, two percent higher than the average earnings of $23.97 in 2013.