I’m writing this the way I do most of my writing, at home on a laptop (mounted on a stand on my kitchen table, with a Bluetooth keyboard). I’ve worked this way for a long time; neither my journalistic nor my academic work requires that I be in the office all day, every day. But my work style used to be exceptional.
Not anymore. Remote work surged during the pandemic, and while some workers are going back to the office, many people seem likely to continue working that way at least part of the time. It’s true that most people can’t do their jobs from home, but those who can are a significant minority — and they are paid more, on average, than those who can’t, so they have a disproportionate effect on markets.
And one of the things that remote workers have been doing with their income is buying or renting larger housing. If you’re going to work from home, you probably want more space to spread out. Also, if you’re spending more time at home, you may want more home to spend the time in.
The rise in remote work is probably the biggest reason that apartment rents have surged over the past few years.
The rental surge of 2021-22 was quite spectacular, with rents rising at double-digit rates for about a year and a half. But it has leveled off recently. In fact, Zillow’s rent index fell in October; other private measures, like those published by Realtor.com and Apartmentlist.com, have been signaling rent declines for two or three months.
This is good news for renters. It’s also, potentially, good news for the fight against inflation.
In the early stages of the 2021-22 inflation surge, some economists — I was one of them, but there were many others, like the influential research department at the Bank for International Settlements — thought it was largely a transitory problem involving supply bottlenecks.
The pandemic caused a big shift in demand away from services toward goods, and strained supply chains meant that things like shipping costs skyrocketed. Eventually, we thought, these bottlenecks would ease and costs would plunge. Which they did.
Overall inflation, however, remained high even as goods inflation came down, because other prices began rising quickly. Most important, official measures of rents began rising rapidly.
But wait: Many Americans own their houses rather than rent. Why do rents matter so much? The answer is that official measures of the cost of housing treat homeowners as if they were renting from themselves, with an estimate of “owners’ equivalent rent” that is based on market rents. Actual rents plus these “imputed” rents account for more than 30% of the consumer price index, and almost 40% of the so-called core index, which excludes food and energy.
So rising rents have been a major factor in stubbornly high inflation, which led many economists (again, myself included) to retreat from the view that inflation was transitory.
But now rents have leveled off and may even be coming down. In fact, the rent surge is starting to look like another bottleneck story, in which large price increases were driven by a sudden shift in the mix of things people were buying, rather than a large excess of demand. And now the bottleneck is easing, with the shift to remote work having run its course for now and new rental units starting to become available.
I don’t want to overstate the bottleneck story. We probably do, in fact, have an overheated economy, which would have inflation problems even in the absence of bottlenecks in specific areas. But a larger amount of recent inflation now looks more transitory than many economists were arguing even a few months ago.
But here’s the thing: Easing rent inflation hasn’t yet begun to show up in official price statistics. That’s because the official statistics show the average rent people pay, which is dominated by people on existing leases, rather than the rent paid by new tenants, which is what sources like Zillow measure. That’s not a flaw in the data, which are meant to measure the average cost of living rather than the latest developments. But it means that standard inflation measures are lagging well behind a rapidly changing economic picture.
While the official numbers are surely overstating inflation’s stubbornness, I’m not ready to say that our inflation problem is already over. Still, inflation is looking less intractable than it did not long ago.
An important part of what has happened seems to be a kitchen-table issue — not in the sense of the political cliché but in the sense that many more Americans were now, like me, working at their kitchen tables and demanding bigger kitchens and tables. And the good news is that, as a driver of inflation, at least, this effect is fading away.
Paul Krugman, winner of the Nobel Memorial Prize in Economic Science, is a columnist for The New York Times.