Major rent increases are the latest talk in the real estate world. If you’re a landlord, this is great news to you, and if you’re a tenant, you are feeling a bit panicked. If you’re a homeowner, you are probably just feeling relief that you have a fixed mortgage. People act like this is such a surprise, but I saw this coming. It happened in 2008 as well when many people were losing their homes and moving into apartments. Increased demand increased the rents. Yet this time, it is different. We had a lot of government intervention in this downturn and, so far, very little home loss. Yet, here we still have it, rents skyrocketing. I know in Phoenix, some places are doubling in rent. The question is why and I am going to explain below and also, if you’re a tenant, what you can do about it.
1. In 2020, Rents were declining or staying the same
Typically rents grow year over year. With the eviction moratorium in place and many people moving around the country, rents overall went down in a lot of areas in 2020. Fast forward to 2021; landlords want to get that missed rent growth back, so they are raising their rents.
2. Housing Prices are Increasing at a Record Pace
You cannot have people paying astronomically more for homes, and it does not affect rental rates. For example, if someone buys a condo for 300k, they are going to need to rent it for more than if they bought it for 200k. Rent incomes are based on home costs. If a home is worth more, the mortgage, property taxes, and insurance is all more expensive, so you will always see that reflected in the rents.
3. There is more Demand for Rentals and a Limited Supply
With home prices being so high, many people are selling their homes or unable to buy a home and therefore renting. This increases the demand for rentals. As with anything, if you have increased demand and a limited supply, prices will go up.
Also, there is a supply issue. With building costs increasing, there is not very much new construction. Most of the construction you are seeing was started before the pandemic and is just being completed, but very little new construction is being conducted. That will affect supply in the next year or two.
4. Air BNB
A lot of landlords didn’t want to deal with the eviction moratorium and decided to use their rental as an Airbnb. This is especially popular in tourist states like California, Florida, Arizona, and Nevada. The Airbnb market has cut the supply of normal rental housing, limiting the supply and raising rents.
As a Tenant, What You Can Do….
1.Ask Your Landlord if They’ll do a Longer Lease
If your landlord will do it, locking your rent in now is a good idea. As rents increase over the next few years, locking in your rent for a longer term than a year can really help you out.
If you’re in a two-bedroom, then find a one-bedroom that is more affordable or even a studio if that is what you can afford. You never want to stretch yourself too thin with rent vs. income.
3. Get Creative
I always like to find creative ways to get more income. Maybe you get a roommate or rent your spare room on Airbnb. I even know someone who rents their car out on an app. You may just need to think of creative ways to passively make money.
4. Look for Mom and Pop Landlords
If you want to find a deal on rent, typically, you want to find mom-and-pop landlords. This is because small landlords don’t want vacancies, so they tend to keep their rents a bit lower than market rent and are more likely to do a multi-year lease. These smaller landlords tend to advertise on Zillow, Craigslist, and Facebook Marketplace.