Gimme shelter

Renters will soon have more houses to choose from. This will pull inflation down

It's been a tough few years for American renters. The rising cost of living has given their wallets a migraine. Rents have risen faster than wages as there haven't been enough houses. But some much-needed pain relief is around the corner. A considerable number of new homes are on the way. Yet there won't be enough new households to fill them all. As a result, vacancy rates will rise, and rents will fall, pulling inflation down.

First, here's what has happened: rents have fallen for the past nine months, but inflation hasn't. In fact, the annual rate of change in the consumer price index (CPI) is stuck above 3%. It won't budge. The inflation rate fell from 9.0% in May 2022 to 3.1% a year later. But its most recent reading, in January this year, was 3.2%. This stickiness comes despite the Federal Reserve's preferred inflation measure dropping to 2.1%. While a version of the CPI that ignores housing is up a paltry 1.8% year-on-year. Shelter costs—a fancy way of saying the rent you pay you…