How the economy controls rental prices: Every year, people ask the same question: Why does rent keep getting higher?

Every year, people ask the same question: Why does rent keep getting higher? The answer is complicated, but there are some contributors that can be highlighted.

Will prices go down anytime soon? To answer that question, the following concepts need to be considered.

Seller's Market

Things may finally be starting to turn. For the past few years, prices and home values rose at unprecedented rates. This meant that those who were selling their homes were in a strong negotiating position when it came to price. Even though the market is showing signs of turning, sellers still hold some power.

Buyers, on the other hand, are in a weaker position. There's an increased demand for homes but not enough supply to meet it (or enough affordable housing supply). That means home prices get bid up higher than they otherwise would—and when the housing market goes up, landlords can raise rental prices as well.

Renter's Market

You've probably heard the term "renter's market.” It refers to a situation where it's harder for landlords to find tenants, and they have to lower their prices in order to fill their properties. In the early 2010s, this meant that many renters were able to negotiate lower monthly payments or better amenities at the same cost.

Fast forward a few years and we're now in an environment where landlords have high demand and low vacancy rates -- and thus higher rents! The result? Rent prices are on the rise across much of America.

In other words, when combined with the housing market, it is a perfect time for landlords to take advantage. Houses are too expensive meaning more people are looking to rent. With more renters and less inventory, prices are soaring.

Expensive Areas Getting More Expensive

The rent prices in expensive areas are increasing even more rapidly.

One of the major contributors to rising rent prices has been a rapid increase in construction costs. In fact, these costs have risen faster than inflation, wages, and even rents themselves. Construction costs have increased by double digit percentages the last decade which gets passed on to the buyers and renters.

The average home price to build a home is now $282,299 -- and that’s just for a simple two-bedroom house. In some areas like New York or Los Angeles where land is scarce and densely populated with people who want homes close together (think Manhattan), these prices can easily reach millions of dollars.

As a landlord of over 40 years, I will say that rent goes up because taxes and insurance go up. Our properties have risen in value which we cannot access because of capital gains tax which would wipe out most of our profit but we’re taxed on it and if we’re smart we raise the amount of insurance we pay so that if the property burns down we can replace it. We have no mortgage on two of our three rental properties so no automatic payments. But it’s our retirement. Sigh.

For prices to drop, there are two things that could realistically happen. The first is for property management companies to get more business. If they run more rentals, their prices can actually go down per apartment they serve. That savings could be passed on to tenants.

The second possibility is for there to be more affordable homes built. This would mean more available apartments, which if drastic enough could lead to lower prices. Unfortunately, this storm does not seem likely anytime soon, so if you are looking to rent, it may be best to lock in a price now.

Both of these require govt involvement.

Why are rents higher?

1. There’s a housing shortage, everybody keeps ignoring that.
2. Many landlords pay utilities, almost all pay water. Guess what.
3. Property taxes have guess what.
4. Insurance has guess what.
5. Evictions are slow-walked these days. Those who do pay rent get to make up for those who don’t. Non-paying units remain that way for months instead of coming on the rental market.
6. Cost of labor for repairs/renovations has guess what.

After 40 years I got out of the rental business before Covid started. Look above and guess why.

you can never “build” affordable housing.

Building it would imply it was “NEW” and new things always cost MORE than old/used things.

If you want more affordable housing, cities need to start renovating structures they have red tagged for demolition. Make them habitable and safe and then help new homeowners (not investors) with the loans needed to purchase the fixed up older home if they will commit to living in the property for a set number of years themselves.

“As a landlord of over 40 years, I will say that rent goes up because taxes and insurance go up.”

That’s one take-

Some other factors: Land Use Restrictions, Building Codes and “New” Landlords that don’t know shiite.

In one property, I’ve had the tenants in place for over 15 yrs. They’re happy. I’m happy. They treat the place as their home, not a simple “rental”. Kids did well in the local better school. Yard has nice flowers every year. Small veg garden in back.
Not having headaches or finding new reliable renters is worth every penny of any “lost” income from not raising the rent at every chance, or above what they/I can afford.
Had to pass some increases onto the rent over the years, but never jacked the rent just because the market rate.
It’s paid of for me quite well.

“Some people seem to prefer renting, I don’t get it.”

Some people fear the responsibility of ownership. Some people are much better off renting for multiple reasons. Some have careers where transfers are common. Some can’t hold a job long enough to qualify due to personal problems. Some insist on spending more than they make and are always under pressure. Some experience foreclosure and never want to own again. Young people starting out rarely can afford to buy.

And yet renters are a minority in America and have been for a long time. About 65% of Americans own their homes.

And a stunning all-time record of 37% of all homes are owned free and clear of mortgages. Some of that is wealth, some of it is demographics. There are temporarily a lot of old people in America.

There haven’t been a lot of ‘stable’ jobs for decades now. The average IT job lasts 2-3 years. I’m not saying it’s easy, but even just medium term it’s better to buy IMO.

I’ve known people that could easily afford a house 14 years ago or so but stayed renting cause they wanted to save for a ‘dream house’. Meanwhile in that time prices went up 4x and it never happened.

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