The dream for many people used to be buying their first home. However, with prices for just about everything increasing, purchasing a home for yourself and your family may not be sensible. While many individuals opt to rent due to the high prices of homes, renters are finding it increasingly difficult to find any apartments or homes to rent, let alone ones they can afford. There are many reasons why rental properties are increasing, from inflation to migration, finding the best loan options, and more. If you’ve noticed finding a new place to rent in your city is increasingly difficult, here are some reasons that may be causing rental prices to rise.
Not enough housing available
Younger generations are finding it harder and harder to buy their first home. Mortgages and down payments are expensive, and it doesn’t help that the prices for both continue to rise, not to mention high-interest rates aren’t helping. The millennial generation and those surrounding it are opting to rent instead of buying because it often is the more realistic and affordable option.
With so many people searching for their perfect rental and a decrease in the number of people looking to buy a home, the availability of places to live can’t keep up. The fact is, there are fewer rental properties available to lease. Combining that with the limited availability of purchasable homes and people who can purchase them, both prices for homes and rental property prices continue to rise, as well as the demand to buy them.
Prices of homes are going up
We’ve already mentioned that expensive mortgages have led to more people renting properties instead of buying them. But did you know that the prices of homes directly impact the prices of apartments? Down payments for a home typically are around 20% of the total cost of a home, and as prices in areas continue to rise, so do the rental properties around them.
When an influx of residents moving to a new area occurs, property managers take note of the increase in demand to live in that area. As demand increases for homes, businesses are making note of it and looking to expand their companies to these locations. With new businesses and lots of demand, the value of rental properties increases. Too many people are renting.
As we mentioned before, more and more families and individuals are opting for rental properties over buying a home. While reasons for this can vary, many people choose to rent because of the flexibility. In previous decades, purchasing your first home was considered quite an accomplishment. But the reality is, buying a home doesn’t have the same weight in our society as it used to.
People don’t want to spend their own money making repairs or spending their weekends tending to their lawns. Instead, people want to move into a new home knowing it’s someone else’s job to maintain and upkeep a property. Older homeowners aren’t selling anytime soon, so renting a property is the next best thing and comes with some benefits appealing to the younger market. Opting to rent a home instead of buying offers individuals the flexibility to pick and move anytime and find a spot better suited to their needs.
Inflation
Inflation is another factor that impacts the value of properties, and with the current market having high inflation rates, homes and rental properties will reflect this. Inflation affects the property market because it increases the price of everything it takes to build a home, from lumber to steel and insulation materials.
With the rising costs for materials needed to build homes, contractors can’t keep up with the demand, nor are they getting new contracts to build residential properties. With rising prices on just about everything, including labor, homes, and rental prices will continue to rise. Management companies also need to acclimate to rising interest, often requiring them to increase the price of a property and account for higher property taxes.
Migration patterns
During the pandemic, many businesses and families move to less expensive or safer areas. As the pandemic continued, companies re-evaluated their headquarters and locations to see if there was still a need for these spaces. With a majority of the workforce changing to working from home, as opposed to in-office, businesses re-evaluated their leases to reduce costs.
Many companies chose to move to less expensive cities and neighborhoods. These corporate moves lead to an influx of people moving to new areas for work. For example, San Diego’s population saw a huge surge of additional residents as tech companies moved from their original locations, such as San Francisco, to less expensive cities like La Jolla. With so many people looking for rentals, there became fewer homes and apartments to rent, causing lease prices to rise to account for the limited availability.
Contractors and real estate developers often don’t catch these migration patterns until they’re already happening. The delay in building housing and apartment buildings means more people are competing for the same properties, allowing property management companies to increase prices and take advantage of the competing renters. If you saw your rent increase in the last few years, the management company of your apartment is likely taking note of the increase in demand and is looking to make a better profit.
In conclusion
While we’ve listed a few, there are many reasons for costs to rise. Like any market, the housing market, whether it be buying or renting, fluctuates through time. You might see rental prices shoot through the roof during some periods and fall dramatically in others.
The city and the people who live in it or run their businesses in it have a direct impact on how much it costs to rent a home in one area. If you’re trying your best to find a rental property to fit your needs as well as your budget, you might need to consider neighboring areas with less demand. Hopefully, some of the things you’ve learned throughout this article have helped you understand the increasing rental prices and offered you some reassurance about the fluctuating rental market.
This guest article was written by Megan Isola holds a Bachelor of Science in Hospitality and a minor in Business Marketing from Cal State University Chico.
