Rental Properties and Inflation. What should you know?

House and growth chart with arrow. Increasing demand for buying and renting real estate.

It’s no secret that homes are renting for record breaking rates. Over the last 10 years, many properties have appreciated 50-75%, forcing many renters to downsize or combine households to make their rent payments. More recently, inflation is getting the blame for much of the price hikes that are consumers are facing. How does all of this affect rental properties? What has caused rental properties to increase dramatically?

1. Supply and Demand: Much of the rental rate appreciation in the rental market occurred because of high tenant demand and lack of supply. As a result, Landlords were and are able to raise rental rates because tenants simply do not have much choice. Inventory remains slim and rental rates high. As a result, moving to a new property will only incur more costs, such as supplying a new security deposit and moving expenses. Thus, many tenants are staying put in their homes and absorbing increases in rent unless it is absolutely impossible.
2. Increased costs of ownership: When property values go up, so do property taxes. As a result, owners of rental properties are now faced with this increased expense. These can be considerable, especially since property values have increase drastically, some 25% just during 2021. As a result, property taxes are recalculated based on these increased values and owners assessed a higher tax bill.
3. Inflation leads to higher costs of maintenance: It doesn’t take a rocket scientist to figure out that nearly everything has increased in price, from gas to paint and tools to common household supplies. As a result, owners are now facing higher costs of maintenance. As a result, these higher costs are offset with increased rent.

The end result? Higher costs all around and increased rent prices. As the current situation continues, we can only expect more of the same. This situation is forcing many to re-evaluate their situation. Rental assistance resources are being utilized more today than ever before. Yes, a new era has arrived that appears to be here for the foreseeable future.