Image of the day: Prices reflect scarcity

Market rents and vacancy rates in Calgary

Jens von Bergmann, Vacancy rates and rent change, 2021 update.

Prices reflect scarcity. In the case of rental housing, market rents reflect vacancy rates.

When the vacancy rate (shown in blue) is low, market rents get bid up (see the red line), as renters compete to find a place. When the vacancy rate is high, market rents go down, as landlords compete to fill vacancies. A healthy vacancy rate is typically somewhere around 3%.

You can see this clearly in the data for Calgary and Edmonton, because there’s strong economic shocks as oil prices go up and down, and Alberta doesn’t have rent control.

(The annotations refer to a competing theory that commodification, financialization, and greed are what drives rents up and down.)

For an explanation of how prices reflect scarcity, see chapter 7 of Filthy Lucre: Economics for People Who Hate Capitalism (2009), by Joseph Heath.