Can you explain your theory that low rates drive high rent inflation? Seems like it would be the opposite for several reasons: low rates are associated with low inflation, low rates make it much cheaper to build and operate apartment buildings, etc.
There are other things related to the housing market, like construction lagging demand(the U.S. is not building as many dwelling units as purely demographic demand needs) or demand being pro-cyclical.
As far as i can tell, developers are picking up the pace and the whole situation might fix itself with a simple market correction. If housing prices dropped 5% one year, demand would lower and might match supply. Ofc, i cant tell the future, but there are reasons to believe the situation we have is only temporary, and raising rates and increasing supply might calm the whole situation down.
Keep in mind that very few people borrow to pay rent while most apartments and their construction is financed by debt. At first approximation low rates would be neutral for demand but positive for supply.
Therefore, low interest rates inflate the prices of real estate because they encourage people to take on debt because it's at more favorable terms. They also encourage people who have mortgages on worse terms to refinance. With higher interest rates, the ratio of mortgage to all cash buyers would decrease, and so the appraised market value of the property would decrease as well.
The more houses people buy to live in, the supply for houses for rent lowers. People that had property renting out see a higher return by just selling their property, reducing the supply for the rental market.
How strong is that correlation, i don't know. There could be other demographic factors like people moving to cities more and more (SF still has a huge influx of people).
Surely the demand for rental properties lowers by the same amount when someone buys a house.
Increasing density limits, or improving transportation to allow wider sprawl, actually add housing supply in a way that might keep up with demand.
Since it appears that Montreal has relatively low rental rates it is likely that supply is high but demand is low relative to other cities. This is consistent with the relatively low population growth of the area (the Island of Montreal had a larger population 60 years ago than today!). In this situation rent control would have very little impact and be unnecessary anyway.
1966 1,750,969
1976 1,664,527 −5.7%
1986 1,541,251 −0.9%
1996 1,550,369 −0.2%
2006 1,620,639 +2.3%
2014 1,731,245 +5.0%
You can perhaps attribute it to the rent controls that all the metropolitan population growth has gone outside the city (where it has over the past 50 years doubled from 1.3 million to 2.6 million).
But if anyone's seen some decent analysis that says otherwise, I'd love to see it.
Yeah, the link to house prices is clear: low rates means you can afford a larger mortgage, so prices get bid up. The link to rents is less direct: low rates are effected by loose monetary policy -- by central banks pumping money into the market. This means more inflation (not quite the same thing as "rents getting more expensive" of course.)
In theory, anyway. Inflation has actually been very low even with historically loose monetary policy, so folks have been flummoxed (but generally positive about it, because they think it has let them encourage job growth and economic expansion more than they otherwise would have been able to.)