Middleburg Communities Research: Are Apartment Rents a Hedge Against Inflation?

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Middleburg Communities has published its latest research exploring trends in rental housing. In the six months since the onset of COVID-19 in the United States, the Federal Reserve has not only cut rates to nearly 0%, but also purchased securities on a massive scale. The volume of “securities held outright” by the Federal Reserve increased from $3.8 trillion in January to $6.3 trillion in August. It has revived other programs from the Great Recession and introduced new ones to support liquidity in credit markets.

Congress also passed legislation, mainly the CARES Act, which provided $2.2 trillion in support in the form of loans to small businesses, cash stimulus payments to households, and enhanced unemployment benefits. The consequence of these actions by the Federal Reserve and Congress has been a rapid rise in the overall money supply and in the federal budget deficit, which the CBO projects will reach 16% of GDP in 2020, the largest since 1945.

While high inflation remains unlikely in the near term, these developments certainly increase the risk and give rise to questions about how different asset classes may perform if inflation accelerates.

Patrick Lynch, VP of Research at Middleburg Communities, has continued to analyze past and present housing data to track and forecast expectations on what the future might hold for the rental housing universe.

In this fourth report since the onset of the pandemic, Patrick looks at historical data to understand how apartment rents might fare in a high inflation scenario. The analysis considers:

  • Fiscal and monetary policies designed to support the economy during the pandemic have led to concern over future outsized inflation.
  • While a dramatic increase in inflation is an unlikely scenario in the near term, the risk of higher inflation over the medium and long-term has risen.
  • Historical data on rents from the last period of high inflation indicate that apartments can be an effective hedge against inflation.

The full report, “Apartment Rental Rates: Effective Inflation Hedge?” by Patrick Lynch, is available by emailing him at plynch@livemiddleburg.com.

About Middleburg Communities: Middleburg Communities is a fully integrated multifamily development, investment, construction and management company operating in the southeastern and mid-Atlantic United States. Since 2004, Middleburg has acquired and developed more than 20,000 apartment units, executing approximately $2.5 billion in transactions. The Middleburg team shares a vision for greater value creation through community impact. The firm’s success is rooted in a genuine desire to serve its local communities in thoughtful and holistic ways. Middleburg embraces people, property, and partnerships to enhance the lives of others, contribute positively to its neighborhoods and maximize real returns for partners. For more information, please visit www.MiddleburgCommunities.com.

DISCLAIMER
Data presented from any and all sources are cited in the research report(s). Although every effort is made to ensure the accuracy, timeliness, and completeness of the information provided in this publication, the information is provided “AS IS” and Middleburg Communities does not guarantee, warrant, represent, or undertake that the information provided is correct, accurate, current, or complete.

This paper makes a number of predictions. These predictions of the future environment for the multifamily industry address matters that are uncertain and may turn out to be materially different than as expressed in this paper. The information provided in this paper is not a substitute for legal and other professional advice. If any reader requires legal advice or other professional assistance, each such reader should consult his or her own legal or other professional advisor and discuss the specific facts and circumstances that apply to the reader. Middleburg Communities is not liable for any loss, claim, or demand arising directly or indirectly from any use or reliance upon the information contained herein.

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