Real Estate Investment News & Blog

The Truth About Inflating Rents and Deflating Dollars

Inflation is a hidden form of taxation. Inflation has severely damaged the purchasing power of the U.S. dollar since as far back as 1913 when the Federal Reserve was founded after the passage of the Federal Reserve Act by legislators in Washington D.C.

Prior to the establishment of the Federal Reserve (a private entity with a governmental sounding name), inflation was not a significant problem for most Americans.

After the Federal Reserve was created, the value of a dollar fell by at least 98% over the next 100+ years. As a result, $1 in 1913 is now worth close to about 2 cents in 2017.

Numbers Don’t Lie – Unless Created by Economists

One of the most laughable and fraudulent economic numbers released each year by governmental agencies such as the Bureau of Labor Statistics (BLS) is the annual inflation rate as noted by the CPI (Consumer Price Index).
inflation rates
The CPI is the broadest measure of consumer price inflation for goods and services in the U.S. Historically, the CPI index tends to hover in the 2% to 3% range when the real inflation numbers are probably at least twice as high.

It doesn’t matter so much what economists claim about annual inflation numbers. What’s more important to individuals is how much they personally pay for necessary goods and services on a consistent basis.

Most of us know that basic items such as food, clothing, gasoline, utility costs, and rent prices are moving at much higher rates than just 2% to 3% per year.

20 Items Driving up Your Bill

According to the Economic Policy Journal, between 2006 and 2016, these 20 items are driving up your grocery bill the most.

1. Tobacco and smoking products

> Price increase: 90.4%

2. Margarine

> Price increase: 63.6%

3. Uncooked ground beef

> Price increase: 46.3%

4. Shelf stable fish and seafood

> Price increase: 45.0%

5. Prescription drugs

> Price increase: 43.5%

6. Rice, pasta, cornmeal

> Price increase: 40.3%

7. Bread

> Price increase: 38.9%

8. Snacks

> Price increase: 38.4%

9. Miscellaneous poultry including turkey

> Price increase: 37.0%

10. Apples

> Price increase: 36.6%

11. Frankfurters

> Price increase: 35.8%

12. Canned vegetables

> Price increase: 35.3%

13. Salt and other seasonings and spices

> Price increase: 34.0%

14. Miscellaneous fats and oils including peanut butter

> Price increase: 34.0%

15. Miscellaneous processed fruits and vegetables including dried

> Price increase: 33.7%

16. Bacon and related products

> Price increase: 33.2%

17. Fresh whole chicken

> Price increase: 32.5%

18. Cakes, cupcakes, and cookies

> Price increase: 32.1%

19. Flour and prepared flour mixes

> Price increase: 32.1%

20. Canned fruits

> Price increase: 32.0%

Real Estate: An Exceptional Hedge Against Inflation

Yes, real estate is an exceptional hedge against inflation if you own the property. This has proven to be true since the early 20th century, partly since values have consistently compounded annually at a pace at least as high as the annual reported inflation numbers.

However, inflation can be your number one enemy if you rent.

After the implementation of  Quantitative Easing (QE) policies in late 2008, the value of the dollar has rapidly fallen while consumer goods and asset prices have skyrocketed.

Once again, the primary stated goal of QE was to boost asset prices by creating trillions of extra dollars “out of thin air” by the combined efforts of the Federal Reserve and U.S. Treasury. When too much money chases too few goods, rampant inflation is typically the outcome.
Real estate prices have reached historic highs in prime coastal regions in Los Angeles, San Francisco, Seattle, Boston, and New York City due to record low interest rates, fewer construction projects, and increased demand from people who can’t afford to buy a home.

Wasn’t it just 10, 20, or 30 years ago that a person could rent a nice two-bedroom apartment for $300 to $700 per month?

Today, rents are outrageous for many tenants and welcomed by landlords who see their property values and incomes increase dramatically.

Top 15 Priciest Rental Regions

The Department of Housing and Urban Development (HUD) guidelines suggests that any tenant who pays more than 30% of their monthly income on rent is “housing cost-burdened” as a result.

Per this rental income analysis below of the Top 15 most expensive rental regions in the U.S., the publication Smart Asset  used a maximum 28% housing expense number for qualified rental applicants, so that they would not be classified as “housing-cost burdened” by HUD.

Sadly, many of the most expensive housing regions, such as Los Angeles and San Francisco, have averages closer to tenants paying 50%+ of their monthly income on just rent alone.

Let’s review the average annual income needed by a qualified tenant for a two-bedroom apartment in the Top 15 most expensive housing regions in 2017:

City                                        2-Bedroom Rent              Annual Income Needed

San Francisco, CA                         $4,189                                    $179,529

New York, NY                                 $3,841                                    $164,614

Boston, MA                                     $3,166                                    $135,686

Los Angeles, CA                             $2,556                                    $109,543

Washington, DC                              $2,416                                    $103,543

Chicago, IL                                      $2,254                                    $ 96,600

Seattle, WA                                     $2,025                                    $ 86,786

Miami, FL                                        $1,722                                    $ 73,800

Philadelphia, PA                              $1,572                                    $ 67,371

Riverside, CA                                  $1,431                                    $ 61,329

Atlanta, GA                                      $1,258                                    $ 53,914

Dallas, TX                                        $1,204                                    $ 51,600

Houston, TX                                     $1,088                                    $ 46,629

Detroit, MI                                        $1,087                                    $ 46,586

Phoenix, AZ                                     $   958                                    $ 41,057

Since inflation is likely to continue at a fast pace, owning real estate will always be more beneficial to investors than to the tenants scrambling to keep up with the increasing rents.

There are many happy landlords who have seen their net worth increase due to increasing inflation and rental prices.

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About the Author...

Check out Rick's new book The Credit Crisis: 10 Years and Counting (August 2017 publishing date) as well as The Credit Crisis Deals: Finding America's Best Real Estate Bargains.

Rick Tobin has a diversified background in both the Real Estate and Securities fields for the past 25+ years. He has held seven (7) different Real Estate and Securities brokerage licenses to date. He also writes college textbooks and real estate courses in several states for some of the largest educational firms nationwide.

Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Equity Funds, and foreign money sources.

You can visit Rick Tobin at


  1. Mike Johnson says:

    Great article Rick! Inflation is a hidden purchasing power killer for sure. So glad I own mobile home parks to overcome it!

  2. Rick Tobin says:

    Thank you for your kind words, Mike. Yes, mobile home parks can be exceptional investments.

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