WASHINGTON, Nov 29 (Reuters) - State and local governments distributed more than $2.8 billion in emergency rental assistance funds to more than 521,000 renters in October, the U.S. Treasury Department said on Monday, forecasting that $25 billion to $30 billion in such funds would be spent or obligated by the end of the year. The Treasury said its efforts over the last six months to give state and local governments more flexibility in distributing the funds had helped accelerate the flow to renters in need, after slow early progress. In its latest update on the program, the Treasury said more than 2.5 million payments had been made to renters. For ERA 1 alone, the Treasury estimates that at least 80% of the program’s funding will be spent or obligated by year-end, nine months before the deadline for grantees to spend their initial allocations. As of the end of October, more than 100 state and local governments receiving grants had expended 95% or more of their funds, and nearly 130 grantees had begun to spend their ERA 2 funds. The Treasury said it had begun to reallocate unused funds, but said it expected only a limited amount to be available, given the rapid pace of improvement in the ERA programs. The Treasury is also encouraging states and localities to use other sources of funds, including the $350 billion Coronavirus State and Local Fiscal Recovery Funds, to provide additional support to renters. The U.S. residential rental vacancy rate dropped further in the third quarter as the economy continued to normalize after severe disruptions caused by the COVID-19 pandemic, potentially indicating that high inflation could last for a while. The rental vacancy rate is closely watched as the debate over whether the current phase of high inflation is transitory heats up. Rents increased by the most since 2001 in September, helping to boost consumer prices that month.