By Erik J Martin, CTW Features
If you’re in the market to lease a rental, prepare to fork over more cabbage. That’s because all signs point to a less-affordable market for current and future tenants.
According to Rent.com’s latest data, 95% of rental units are up in price versus last year, with rents on one-bedroom units up 25.5% and two-bedroom units up 26.8% year-over-year. The cities with the priciest rent increases in one-bedroom rentals year-over-year are Austin, Texas (up 121.2%), Long Beach, California (up 62.0%), Tacoma (up 49.8%), Jersey City (up 48.6%), and New York City (up 45.8%).
Why can’t renters catch a break? Experts point to several culprits.
“Rental prices, similar to home sale prices, are on the rise primarily due to continued strong demand,” says Robert Smith, a Realtor with Brick & Mortar Properties LLC in Knoxville, Tennessee. “With fewer homes on the market, not only are landlords able to be more selective with who they rent out to, but they are also able to rent out at a premium. Some areas have seen increased home taxes due to the rising cost of homes, with landlords generally passing that expense onto the tenant via rent increases. Additionally, the cost to repair and update homes have increased along with material prices, so landlords are raising rents to spend less out-of-pocket.”
Peter Schravemade, managing partner of Second Century Ventures REACH ASEA, explains that rising mortgage interest rates have made it more expensive to be a landlord, too.
“The required return on investment for a landlord is accordingly higher, and that difference will be passed on to tenants,” says Schravemade.
Ran Eliasaf, founder and managing partner of Northwind Group, a real estate private equity firm that manages three discretionary debt funds and is headquartered in New York City, points to the lack of home-for-sale inventory as another major contributor, partially because it’s more expensive to construct homes today.
“On the supply side, building material price increases, labor shortages, and supply chain disruptions continue to cause delays in new developments and deter developers from entering new construction projects,” he says. “Many consumers are also flux with savings they gathered over the last two years when spending was reduced. Many are now willing to spend bigger on housing, which has contributed to a lower supply of homes.”
And fewer available homes on the market mean many prospective buyers must turn to leasing, which adds to rental demand.
Not all markets are experiencing serious rental price jumps. Per Rent.com, Indianapolis, Las Vegas, Baltimore, and Atlanta have seen the price to rent one- and two-bedroom units come down lately.
“The eight cities with the largest rent declines have seen a 13% average decrease year-over-year of two-bedroom apartments,” Eliasaf notes.
To improve your chances of claiming a more affordable rental, pursue recommended best practices.
“Be willing to sacrifice convenience and lifestyle to get a more fiscally sound position. This would include looking at renting further away from work or changing cities and/or jobs if needed,” advises Schravemade. “Alternatively, think about sacrificing the size of your rental dwelling for a lower rental price. And consider a shared rental arrangement in which you get one or more roommates to help you split the costs.”
Another proven strategy? “Ask the landlord if they would be willing to decrease the monthly rent amount if a longer lease term is signed. It’s common to see a 12-month lease, but a 24- or 36-month lease is an opportunity, especially when the biggest out-of-pocket expense to a landlord are the repairs and updates needed between tenants,” suggests Smith. “Also, see if giving a larger security deposit would result in a break on your rent, if allowed.”
Lastly, work on improving your credit score; a lower credit score, caused by things like missed payments, could result in you being charged a higher rent or rejected by a landlord.