CPI, shelter, and coffee milk: the state of rent in the U.S. : The Indicator from Planet Money The latest inflation numbers are in. This month's Consumer Price Index, or the CPI, is ... well, good and bad news for renters.

Shelter prices went up over the last year, but at a slower pace. Shelter makes up nearly a third of the CPI.

Today's episode: Rent. Where is it high? Where is it low? What exactly is "coffee milk"? The Indicator tours the U.S. to bring you the answers.

Related Episodes:
When mortgage rates are too low to give up
How do you measure inflation?
The lawsuit that could shake up the rental market

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The highs and lows of US rents

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SYLVIE DOUGLIS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

DARIAN WOODS, HOST:

Wailin, can you just hold this bed up to the wall?

WAILIN WONG, HOST:

Oh. Yeah, yeah, of course.

WOODS: Yeah, I just need to get this fold-down Murphy bed installed before we start the show. We need some room to record.

(SOUNDBITE OF HAMMERING)

WONG: Oh, no, Darian. You can't use a power drill like that. Let the expert show you - me.

WOODS: All right.

(SOUNDBITE OF POWER DRILL)

WONG: There you go, Darian. Solid as a rock.

WOODS: I will sleep like a baby, like a baby on a rock.

WONG: (Laughter).

WOODS: Thank you, Wailin Wong. It's looking good.

WONG: I think, you know, you could really do with some more space in this apartment. I mean, what is this even, a micro-studio? What do they call this?

WOODS: No need to shame my new pad.

WONG: No shame. It's very cozy. It's like your little hobbit hole.

WOODS: You take what you can get in New York. Rent is the highest in the U.S. here, and it's growing.

WONG: And all around the country. Shelter costs grew 5.5% over the last year. That's a slight cooling off from previous months, and it's a part of why we learned today that CPI inflation dropped a little to 3.4%.

WOODS: Shelter makes up nearly a third of the consumer price index or the CPI. It's the biggest part. And it's worth noting that this mainly reflects the cost of rent, not house prices, which are not included in CPI.

WONG: And so today on THE INDICATOR FROM PLANET MONEY, we're going on a virtual rent tour around the U.S. We'll find out what's happening with those monthly checks to the landlord all around the country after this short message.

(SOUNDBITE OF TRAIN HORN)

WONG: All aboard.

WOODS: Choo-choo.

WONG: And put on your headphones because, with the power of imagination and royalty-free sound effects, we are taking a tour of the U.S. rental market.

WOODS: We'll first take a train to Providence, R.I., and we will go to a coffee shop, where I'm told we need to order some coffee milk.

WONG: First micro-studios, now coffee milk. What are these words you're saying, Darian?

WOODS: It's, like, this coffee syrup with milk. It's the official Rhode Island state beverage, I'm told.

WONG: All right, I'll try it. We do need some caffeine because this is what we've heard from Skylar Olsen, chief economist at Zillow.

SKYLAR OLSEN: So rents are up almost 8%. It has the largest increase over the last year.

WOODS: Eight percent, the highest increase in the country. That is great for landlords, but it's not going to help inflation one bit.

OLSEN: Providence, R.I. sits right in between New York and Boston. Relative affordability at a time when affordability is a challenge is still gold.

WONG: Right. So typical rent in Providence is a little more than $2,000 a month. That's a lot cheaper than Boston or New York, where it's more than 3,000. But it's rising fast. Aging millennials are moving to Providence from the big cities, maybe with families and wanting to buy a house. But people owning homes aren't selling because they want to keep their low-interest mortgages that they locked in a few years back. It's the lock-in effect again. This time, driving up the prices of rental homes.

WOODS: We'll link to our episode on that in the show notes. And the question here is, can Providence build fast enough to cater to these new arrivals?

OLSEN: No (laughter). Apparently not.

WOODS: That's a clear answer.

WONG: Not very comforting. So where is rent falling?

WOODS: For that, strap on your seat belt because we're going to take a trip to the West Coast. Jay Parsons is the head of investment strategy for the property investment and management company, Madera Residential.

JAY PARSONS: They're down 2% in Portland, on the apartment side.

WONG: The dream of the '90s is alive in Portland, at least for renters. But the reason Portland's apartment rents are falling isn't so pretty. Portland has been losing jobs. Its employment shrunk 1.5% in the year to February. That is the most among 50 cities.

PARSONS: It's not like there's been mass move-outs out of the market, but the growth has slowed down.

WOODS: It's no longer getting the promotion of the TV show "Portlandia."

PARSONS: Yes (laughter). They've lost that - their free marketing.

WONG: You know, Darian, I think we should look into a place that is both booming with jobs and has falling rent.

WOODS: Does such a magical place exist?

WONG: Oh, boy, oh, boy, put your tray table up because we're getting weird, and we're going to Matthew McConaughey stomping grounds - Austin, Texas.

(SOUNDBITE OF FILM, "DAZED AND CONFUSED" )

MATTHEW MCCONAUGHEY: (As David Wooderson) All right, all right, all right.

WOODS: This is a weird place.

WONG: It is. And you know what's even weirder is I'm going to take you paddle boarding first.

(SOUNDBITE OF WATER SLOSHING)

WOODS: OK. Well, look, the view from Lady Bird Lake is splendid, and I can see why so many young people moved here over the last several years. But the question is, could I afford any of those gleaming apartments overlooking the lake?

PARSONS: Rents overall are down 7.4% - the largest cut in the country.

WONG: And that's because even though Austin is adding jobs, it's adding apartments even faster.

PARSONS: For every 100 apartment units that exist in Austin, they're going to add nearly 12 more this year. So, you know, 12% growth in apartment supply this year.

WONG: That's thanks to suburban expansion and Austin's more permissive regulations like letting builders build higher.

WOODS: Now, this is an interesting point 'cause I know in my neighborhood, I sometimes hear people opposing new apartments because they worry it'll attract new people that drive up prices.

PARSONS: You know, the laws of supply and demand suggest otherwise. There's a process that academics call filtering that's taking place, which is that we're building, you know, mostly upper-income apartments, yes. But what's happening is that's pulling upper-income renters out of more moderately priced apartments into these newer ones, which then creates availability at the moderate price points, and that's opening up availability at the bottom end of the price point. So that's a - ultimately a win-win at all price points.

WONG: So what Jay is saying is that big cities in the Northeast aren't building apartments and houses to keep up with the population, and that is why you're having to be creative with your micro-studio, Darian.

WOODS: Yes, and so let's fly back there to debrief.

(SOUNDBITE OF CAR HORNS)

WOODS: All right, so we're back in my micro-studio. Wailin, I see you've still got your drink. You can put it, I don't know, on my laptop.

WONG: Don't you need your laptop to take notes?

WOODS: I guess I do. So where's any space? Just put it on my Monstera plant.

WONG: (Laughter) This mug is full of coffee milk. I still have it from Rhode Island. OK.

WOODS: It's growing on me.

WONG: Yeah, it's finely aged, too, (laughter) because it's been all around the country at this point. OK, so we've seen rents going up in the Northeast because of low construction and high demand. We've seen rents fall in some parts of the West as jobs leave cities like Portland, but also falling rents in Austin in the South as housing construction booms. It's a mixed bag, but it all sums up to that total picture in today's CPI report. The average American is paying 5.5% more than they were last year.

WOODS: Yeah. And I have to say, even if average rent growth is kind of cooling off, it is resting at this higher balance, and it could pick up again. Skylar from Zillow warns about that.

OLSEN: We model in our - Zillow's formal forecasting, the age group from 25 to 45 years old, and it's going to keep growing. Over the next, you know, few years, that size of that population is going to grow and grow and grow. But this year was its peak growth year. This is the time of the millennials. This is a huge demographic need, and we underbuilt over the past 15 years.

WOODS: Right.

OLSEN: And so you're seeing kind of rent grow.

WONG: The Fed is trying to combat inflation by keeping interest rates high, which mostly works by slowing down the economy. But as you mentioned earlier, there are these less welcome unintended consequences - mortgage lock-in. And it makes it harder for homebuilders to finance new construction, both of which actually raise the cost of shelter.

WOODS: Yeah. And shelter has these other factors that are super important. Jay Parsons, the rental housing economist, pinpoints the role of construction.

PARSONS: Where there's supply growing, rents are falling. Where there's no supply growing, rents are going up.

WOODS: And so until there's sustained falls in prices, Americans will be economizing. They'll be delaying moving out of home. They'll be getting roommates and maybe even installing a...

(SOUNDBITE OF MURPHY BED CLOSING)

WOODS: ...Murphy bed.

WONG: No, Darian.

WOODS: Wailin, I'm stuck in the Murphy bed.

WONG: Just hang on, Darian.

WOODS: Help.

WONG: Where's the power drill?

WOODS: Help.

WONG: Hang on, Darian. I'll get you out of this tight space. OK, OK, there we go.

WOODS: Thank you, Wailin. This episode was produced by Angel Carreras with the engineering by Valentina Rodríguez Sánchez. It was fact-checked by Sierra Juarez. Kate Concannon edits the show, and THE INDICATOR is a production of NPR.

(SOUNDBITE OF MUSIC)

WONG: (Laughter).

(SOUNDBITE OF MUSIC)

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