Great analysis. I do have a question about the last bit, though. Declining rent yields should come from either rents declining or prices increasing, but you say, "Why then have yields fallen more in less expensive zip codes compared to more expensive ones? The answer is that house price appreciation is less pronounced in less expensive zip codes than more expensive ones." Shouldn't that increase rent yields relative to more expensive zip codes? Or am I confused or missing something?
Agree there is money to be made (in any supply-constrained asset, these days). But from a social perspective, isn’t a decline in rental yield simply a transfer from future homebuyers to homeowners. If the trend in rents is steady, nothing has changed from a cashflow perspective - it’s all discount rate. Personally, I think capitalism starts to misfire when society perceives more to gain from falling discount rates than from the growth of underlying cash flows.
Great analysis. I do have a question about the last bit, though. Declining rent yields should come from either rents declining or prices increasing, but you say, "Why then have yields fallen more in less expensive zip codes compared to more expensive ones? The answer is that house price appreciation is less pronounced in less expensive zip codes than more expensive ones." Shouldn't that increase rent yields relative to more expensive zip codes? Or am I confused or missing something?
Agree there is money to be made (in any supply-constrained asset, these days). But from a social perspective, isn’t a decline in rental yield simply a transfer from future homebuyers to homeowners. If the trend in rents is steady, nothing has changed from a cashflow perspective - it’s all discount rate. Personally, I think capitalism starts to misfire when society perceives more to gain from falling discount rates than from the growth of underlying cash flows.