Are Renters In Trouble? Double Digit Rent Increases Predicted

March 21st, 2011 by Snow Conant| Posted in Apartment Guide, Apartment Living, Apartment Market Info, Facts & Figures, Multifamily, Multifamily Foreclosures, Weekly News Update | No Comments »

Those of us keeping an eye on the apartment industry have lately been flooded with articles predicting rent hikes (well, lately might be stretching it — ‘rent hike’ articles have been trickling out of the mainstream media for well over a year now). As a renter myself, as well as writer for the apartment industry, a drastic rent increase is alarming – but is it inevitable?

Long story short: probably.

Unless ‘The Rent Is Too Damn High’ Party stages a major coup and wins every election in the next several years (not happening) – we are looking at rents rebounding along with the economy. Folks who have been cramming into studios or tripling up in apartments are starting to pull in more money and upgrading their living situation. People who were forced to move back in with Mom and Dad are now back out on the rental market. Classical economic reasoning stipulates that a decrease in apartment vacancy rates triggered by a demand surge will always result in a rent increase.

Nobody quite knows how the glut of cheap, foreclosed homes will affect rent prices. The high cost of credit as well as the harrowing housing crisis of the past few years may well drive many into apartments, where, at the very least, foreclosure is somebody else’s problem. However, if the cost of buying a place drops below rent rates, people will start to buy again – at which point rent increases will likely be reined-in. The question on everybody’s mind, then, is – how far will rental rates rise before low housing purchase prices cause them to level off? CNN Money predicts rents will raise about 10% in the next two years, compensating for a lack of increases during the recession. High demand cities can expect even sharper increases.

source: cnn.com

What does this mean for the average renter?

If you’re in a place you like – and you can lock in some sort of rate – do it! Or if you’re thinking to move – do it now rather than waiting 6 months or a year. In San Francisco we have already noticed rents going up quite quickly – and the availability of sweet apartments at reasonable prices has sharply decreased. You want a 1 BR that is not a dank hole of 15 year old carpet with a bedroom the size of a closet? $2K/month! With average rents nationwide going up to $850/month, there are people out there paying double the average – and feeling pretty happy about it.

What does this mean for apartment owners?

After the recent economic meltdown, rental market trends point to less housing construction and higher occupancy. As as demand increases perhaps there will be safe opportunities to expand again. In the short term, it seems that increasing rent slightly will not deter renters from moving out of their parents’ basements.  Perhaps some of those ‘fire sale’ priced foreclosed homes could be turned into apartments…

Did the housing crisis permanently modify the American Dream?

Foreclosure rates, expensive credit, and a (semi) jobless recovery have forced many would-be and former home owners into apartments. While the American Dream has traditionally included the ability to buy a house – some apartment industry experts have been speculating that recent increases in rental trends imply a fundamental value shift. Has the American Dream changed? Do the majority of Americans no longer include ‘home purchase’ on their list of life goals? I still aspire to buy a house some day – but I have not been burned by a painful foreclosure. Does the American Dream still exist at all?

I’d love to hear what you guys think – please add to the comments section or put your opinion up on our Facebook page.

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