+1 to including some kind of rent-growth factor. Where I live the amount a landlord can increase rent every year is capped fairly low (like 3%?) and I stayed in the same apartment for 7 years. In the beginning my rent was market rate and by the end it was way below. By not bouncing around apartments every couple of years I saved a ton of money which I ended up using for a down deposit on a house. On paper the decision looks crazy because the mortgage payments are higher than the rent I was paying but it doesn't take into account that moving wasn't an option, I'd have to stay in the same place forever (or at least until I got "renovicted").
> The exact amount they can get away with depends on personal tolerance and your time value for money, but given how much moving sucks, in practice it's quite a bit.
It is my experience, as you say, that rent tends to increase by a small amount each year, usually about 2%. Even people on fixed incomes tend to get cost of living adjustments, though, and the range is about the same as typical rent increases.
I do not see rents increasing by the amounts you suggest, which suggests that either all landlords since I started renting in 1991 have been leaving money on the table, or they can't actually do this reliably.
I think there are several reasons why they can't raise rents by 10% a year in order to keep people there, even though that extra money would be about what it costs to move:
Since the money it would cost to move grows only at inflation, by the second or third year it would suddenly be profitable to move, even for renters who really hated moving. In order to avoid this, landlords would have to apply the rise only once. But if they do this, then the market rate is just the higher one, and you could look at the initial lower rate as a promotion. In fact, this is quite common in rental advertising! Often it comes in the form of "first month free", which is about of the same scale.
More importantly, people who rent probably do not expect to stay in the same house or apartment for many years. In non-rent-controlled areas, rent is more expensive per month than buying the same sort of place, so if you intend to stay in the same location for more than a few years, there's no reason not to buy. As a renter, I've never lived in the same dwelling for more than three years, and when I move somewhere, I assume that I'll be moving again in a year or two, as conditions change (job, relationships, etc).
This is particularly true when it comes to your place of residence. Moving constantly means you never "lock in" a level of expenses and will always have to earn more to keep up with inflation of housing prices (be it rent or purchase price). At least in Europe it is common to have indefinite rental contracts with a clause saying they can never raise the rent more than LOW_SINGLE_DIGIT% per year or even only for 10 years and not after.
True, but you leave out the cost and hassle of moving regularly. Most landlords know that people don't want to be relocating each year, so they can slowly increase rent year-over-year.
Or, if rents in your area go up, your landlord might ask you for hundreds more per month in rent when it's time to renew your contract.
I was renting a place for $950/month starting in 2011, then for 2012 it went up to $1,050, then for 2013 the landlord wanted $1,350/month to renew. Meanwhile home prices were still low (30% of inventory still short sales in my area) and mortgage interest rates were under 4%. No-brainer. I now pay less in principal and interest than I paid in rent, for a much larger, nicer house compared to the apartment I lived in. And my mortgage payment is never going to go up. (My property tax bill might go up, but that just means my investment is appreciating.)
Not only that, the money saved in the short term (those 4 years without a rent increase) can be allocated however the tenant chooses. It can be frivolous spending, or the tenant can choose to turn it into long-term investments for compounding effect. I love being a tenant in these scenarios.
I think people that are arguing bigger rent increases that happen less often are bad are assuming tenants are stretching their housing budget to the max and won't be able to afford the large hikes. In which case they wouldn't have been able to afford it with smaller increases either.
This happens all the time. Deciding whether a raised rent price is justification for moving out is a complicated and personal process and yet it fuels all of the response to landlords that do this.
Also, 1-year leases are typical in the U.S. (at least Philly/NYC northeast U.S.), so from that contractual perspective, your rent can go up every year and that's totally legal.
Many people live in rental markets where rent increases are more than 10%. At least if you own there is some upside at the end of it. And you can estimate how much your upkeep will rise over the years.
Back when I was still renting, even though I had more than enough income to cover increases, I'd feel immense stress every time the months leading up to lease renewal rolled around. Keeping housing costs below a certain threshold is a critical part of being able to stick away some cash for a rainy day or even having anything left over, and accomplishing this usually meant moving every few years, which meant periodically returning once again to the grueling search for something with vaguely not-horrible value for the price, which is exacerbated if you're anything but a perfect model renter who doesn't have pets or kids — even making substantial use of the kitchen is prohibited in some rentals. A lot of landlords seem to want tenants who only ever come home to sleep and are otherwise ghosts.
Ever since I bought a house a couple of years ago, mental bandwidth I'd lost to this stress has been coming back to me. Housing costs being essentially fixed in perpetuity and there being no possibility of being forced to move has done wonders for cutting down on stress and anxiety.
As a landlord, if you want to forecast over long periods you don't raise rent. Everything else is rolling the dice. Someone who increases rent by the maximum each time owns multiple units they can afford to leave vacant for indeterminate periods, and is gambling with their money.
I like apartments, and would probably still live in one if I lived in an area with reasonable rent control. The last time I lived in an apartment, the rent raised 20% one year, 20% a year later, and then I left when they wanted to raise it nearly 30%. (original rent was $2000, the last rent increase pushed it over $3500)
Housing prices rose during that time, but not commensurate with rent. I ended up buying a condo outside of town. But I'd rather have the flexibility of an apartment -- if I get a job farther away, I'm pretty much stuck with the condo, but if I had an apartment, I could live closer to work.
Have you ever looked at the possibility where one's family has to move every year or so because landlord decided to increase rent to 'catch up' with market. This is what it looks like in communities where lot of people wants to move in but no rent control. One can move in but will not have any stability.
I think the parent's point is that since price increases are capped, landlords cannot increase beyond a certain point in a single bumper year. To compensate, they may increase rents beyond what they would otherwise to be able to maintain a similar average increase. Citation is needed, of course.
I'm moving out of a house right now in the midwest that bumped my rent by $100/mo each year, but they listed it back at my original rate this year. For some reason, being a multi-year tenant cost me an extra ~$3000.
12 months or more to increase rent seems counter-productive. As it would mean that what makes most sense for landlord is to just increase by maximum each and every time as they cannot forecast changes over such long period.
Still, capping increases to something like inflation+2%, and making leases continuous with long termination periods would be entirely sensible fixes.
Where I lived through 2004-2007, my rent never increased, but that was a much less active rental market than Boston.
Since moving to Boston in 2007 I've only been in the same place long enough to have 2 opportunities for rent-raise requests, and it was raised both times. I don't recall the first (I decided to leave, the company was horrible), and the second the landlord asked for 3% and we haggled it to 2%.
I think some landlords try to balance turnover because there are benefits as well as costs and hassles. Turnover gives you a chance to thoroughly clean and do lots of minor maintenance that a long-term tenant is likely to neglect.
I was in a similar boat years ago. The company I rented from wanted to increase my rent 12% year over year. I told them I didn't make 12% more money, spent a lot of time pleading, and talked them down to merely 9%. Rents were all over the place, and there was little I could do about, except move to a new apartment every year.
reply