- Equity Residential CEO Mark Parrell on Wednesday said he’s not sure just how high rents would get.
- But he said he expected that whatever inflation was — they’d increase by more than that.
- Parrell also said typical residents of Equity Residential’s luxury units could afford increases.
As American renters continue to reel from rising housing costs, Wall Street investors are betting that housing will get even pricier relative to the costs of other goods and services.
While Equity Residential CEO Mark Parrell says he doesn’t know how high rents will be in the long term, he adds that they are likely to outpace inflation.
One of the largest owners of rental housing in the US, Equity Residential operates more than 80,000 luxury units across 210 buildings in places from longtime hubs like New York City to pandemic hot spots like Austin, Texas.
“I think you should expect that apartments, especially in our portfolio, are optimized in a way with our pricing engine that we can continue to have a real return that exceeds the rate of inflation,” Parrell told analysts Wednesday on the company’s second-quarter earnings call.
The consumer price index — which is used to measure the rate of inflation — rose by 9.1% from June 2021 to June of this year. Economists predict it will probably level out at about 8.6% by the end of the year.
If Parrell’s business calculus is right, then, rents would go up by more than 8.6% in 2021. In the average year, he added, rent grows by about 3.5%.
Clearly, a big difference. And some might ask how rents could keep growing after a record-shattering year in 2021 when rents across the US rose by 10.1%.
Parrell cites the simple economics of supply and demand, arguing that there are still many more people who need housing than there is housing available.
“With inflation the way it is, the numbers are likely to be a fair bit higher because supply and demand are still also good,” Parrell said.
Buoyed by increasing rents, Equity Residential reported a net income of $223.3 million with a 14.6% increase in funds from operation per share, an alternative to earnings per share used by real-estate firms.
And according to him, people are willing — and able — to pay higher rents.
He said in the earnings release that his firm viewed its “affluent resident base as more resilient to rising inflation due to higher levels of disposable income and lower relative rent-to-income ratios.”
For instance, he said, renters of Equity Residential’s units in New York City put about 18% of their income toward rent, so renters can handle increases. A personal-finance rule of thumb is that people should spend 30% or less on rent.
Population-level research, however, shows that not everyone can absorb higher housing costs so easily. According to US Census Bureau data from 2020, 46% of those polled said they spent more than 30% of their income on rent. People putting over that much of their income towards housing expenses are known as “house poor,” according to Bankrate, and they may be forced to skimp on other necessities to afford a roof over their heads.