As per statistics from the Census Bureau, 36.6 percent of the population rent homes in the United States instead of buying a new one. With the ratio of homeowners to tenants being two is to one, the reasons for renting varies. One of the common reasons for renting is the preference to live in premium locations, which people cannot afford due to high costs or non-availability. Other causes include long-term savings for future down payment or merely avoiding the responsibility of owning and maintaining a home.

With the growing demand for rental properties, rents tend to rise every year. The average increase in rent per year in the U.S could be anywhere between 2 to 5 percent. This sudden increase causes budgeting problems to tenants and crushes the hopes of many would-be homeowners.

From the perspective of a tenant, nothing seems to change year after year. He/she has been and continues to live in the same rental space with the same amenities. Thus, it is only natural for a tenant to ask the reason behind rental hikes every year. However, what they fail to see is the happenings in the real estate market and other factors that affect the rental rates.

Understanding Rent Increases

Here is a list of the top 8 parameters that affect rental costs and the reasons why you find apartments raising the rent every year.

  1. Real Estate Market Changes – The primary aspect that governs rental costs is the market changes. Prices in the real estate sector will continue to increase as demand increases. The important factors that a landlord must take into account while revising rent every year include property cost, current interest rates, insurance, maintenance costs, and municipal charges. Besides, all these factors will vary from location to location.
  2. Annual Inflation – There is a direct correlation between rental costs and the overall inflation rate. Higher the inflation, the higher the real estate prices. Furthermore, rents of apartments will depend on where you choose to live. Thus, landlords also take into consideration the affordability of tenants during periods of high inflation before fixing the rent.
  3. Neighborhood Modifications – As neighborhoods witness improvements, rents are bound to increase. For instance, a location that has schools, libraries, hospitals, supermarkets, restaurants, and entertainment centers nearby will have apartments leased out at a higher rate than apartments located away from a grand central location. Other features that manipulate rent in a particular community include the availability of public transportation, new business prospects, and public services. These factors not only make the neighborhood more attractive but also desirable, as opposed to being “just acceptable.” Hence, it is natural for the rent to see an increasing trend with neighborhood improvements.
  4. Newer Job Opportunities – When an MNC or a large-scale company decides to shift or start its base in a particular location, the value of the said property will definitely increase. Newer companies mean newer job opportunities, which, in turn, will attract more people to relocate close to the new offices. This change thus raises the pricing of housing and rentals in that area.
  5. Property Value – Besides community developments, landlords might also raise the rent of an apartment because of an overall increase in the property value. This rise could happen because of property improvements or renovations undertaken by the landlord. Any additional work that enhances the property’s appeal, such as renovating the kitchen, re-doing the bathroom, painting or landscaping, installing a new HVAC unit, or replacing the tiles, will add to the property’s value. These enhancements get reflected in the overall rental cost.
  6. Property Maintenance Costs – While discussing property value, one reason why it increases every year depends on how well the landlord maintains the property and its surroundings. Thus, landlords need to shell out a significant amount of money in the name of operational costs. Further, property owners will need to meet other additional expenses, including annual maintenance charges, unexpected repair works, property tax, municipality fees, etc… All these factors, which compound over time, affect the annual rental rate.
  7. Economic Growth – As the local economy booms and with more job growths, the prices of housing are pushed to a whole new level. There are even reports revealing that despite a slow and steady economy, housing prices remain high over the last 15-18 months. Thus, it only makes sense to raise the rent to match the increased housing prices.
  8. Profit Earnings – In the end, it all sums up to the fact that landlords are running a profit-oriented business and not leasing apartments for charity. Therefore, even if you overlook the various aspects that decide the rental rates, the profit margins of landlords cannot be ignored. They can increase the rent as per their wish and are not bound by any clause or obliged to give tenants an explanation for rent hikes.

Raising the rents is not exactly on the list of to-do things for a landlord, nor do tenants welcome the raise with open hearts. On the contrary, it is a necessary measure to keep up with the current market changes and to manage the property with each passing year. However, there are certain things that you can do as a tenant when your landlord raises the rent. Most importantly, you must also know what is an acceptable rate of increase.

 Responding to Rental Hikes 

  1. Know Your Rights – There are certain rules that most landlords abide by when it comes to leasing. For instance, they cannot raise the rent in between the lease period. If an owner wants to increase the rent, then he/she will have to wait for the rental tenure to end or provide notice of adjustment. Although you cannot object or sue your landlord if he/she decides to act otherwise, you can challenge them only if the apartment is rent-controlled.
  2. Learn to Negotiate – While not all tenants are good bargainers, you will find a bit of relief in your rent if you can negotiate a good deal with your landlord. For instance, getting into a multi-year lease could prove beneficial to both the tenant and the landlord. However, you should carefully consider the cons before committing to a lease period for more than a year.
  3. Prove Your Worth – If you are skillful, then put your skills to good use. For instance, if you can help with the plumbing or electrical works of the apartment, then you are indirectly cutting down on your landlord’s operational costs. These efforts could help you to continue renting with the previous year’s rate.

While most landlords do not raise the rent on an impulse, the whole rent increase scenario may not seem transparent to a tenant. Landlords do take into account the changing market factors, tax, property value, operational costs, and Consumer Price Index (CPI) before revising the rental rate. However, if rent increases are financially draining you, then you must seek alternative measures like negotiation or renting apartments in the nearby developing locations of high-cost areas.


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