Based on the trends shown by increases in US rent prices over the years, it's safe to say that the rent inflation rate is not as bad as it used to be. In fact, it is currently outpaced by the residential housing inflation rate.
Be that as it may, the extent to which landlords are raising rent does make for quite the statistics. For example, if you were to look at where rent prices stood between Q1 2021 and the corresponding period in 2022, you would find that the average rent increase per year was 18%. One state even recorded an over 20% increase.
There is quite the contrast when you look at a state such as Minnesota with only a 5.93% increase and compare it to another such as Florida, which recorded a 22.59% increase.
The information below will look at how the average rent increase changed in various ways as well as the factors influencing it. There will also be a quick breakdown of some of the numbers across each state and some useful information for landlords looking to raise rent on the local market.
Quick Average Rent Statistics
Year over year, while the average home price increased by 18.83%, the two-bedroom apartment fair market rent (FMR) saw a 13.7% increase.
Looking specifically at states such as New York and Massachusetts, there was an over 35% increase in the FMR year over year.
Since 1980, statistics show that there has been an average annual rent increase of 8.86%.
National Average Rent Increase Per Year
There will usually be an average rent increase annually. The rate of increase does not necessarily match that of currency inflation, but experts will tell you that the two tend to correlate, with either being able to affect the other. Consider the following rent increase information:
- The average rent inflation has been outpacing the average currency inflation by 1.27% since 1980
- The last decade alone has seen rent inflation outpacing currency inflation by 40.7%
- The average rent increase per year has been 3.18% since 2012
- Currency has been losing purchasing power 20% faster than rent has been increasing
Other Prices That Followed
The average rent increase per year is not typically an isolated phenomenon. The rent increase metrics tend to be synonymous with other price hikes that people have come to expect. Some of the numbers surrounding these between 2020 and 2022 are:
- The costs associated with clothing saw a 2.55% increase
- Food prices saw an increase of 4.05 for the period
- There was a 7.45% currency inflation
- The prices in the housing market saw a 31.22% increase during the period
Between January 2021 and January 2022, there was a 27% increase in energy prices. However, the year-on-year rent increase was 3.8%.
There's a lot that influences what the rent increase for each rental property will look like. Some of these factors are tax laws, supply chains, population shifts, and vacancies. Here are some of the historical numbers for your review:
- From 1931 through 1934, there was a rent deflation of 8.9% annually
- In 1920 and 1921, the rate of inflation for rent went beyond 13%
- Out of the last 108 years, there was a decline in rent values in 10 of them. All such decreases happened before 1935
- 1933 has the distinction of having the most significant reductions in rent, recording an impressive 13.48% decrease
Average Rent Increase Per Year in Urban Areas
Seeing a landlord raise rent in an urban area is a little different from one doing so in more remote areas. As you know, there is more likely to be overpopulation and higher demand on the urban side of the fence, which, combined with other factors, means that higher rates will be faced in such places.
Be that as it may, urban rent increase rates have been slower than the national average for about the past decade.
There has been a 2.51% annual rent increase in urban areas since 2008. The lowest of the last decade came between January 2020 and January 2021, recording a year-on-year increase of 1.6%.
How Does Rent Price Influence Work?
The rent price in various locations will see increases for a host of reasons. One of these is the rate of inflation. After all, it was only 1.2% in 2020. By 2021, though, it would become a staggering 7.5%. Here is a look at a few of the economic and social factors that are typically associated with price increases for rental property.
Supply and Demand Mismatch
You will typically see more significant rent increases when there is higher demand. For example, the demand for rental apartments is very significant. In comparison, there are not enough of them available, which is the reason you'll find rent hikes.
There was a five-year low in the number of available apartment buildings in 2020, for example.
While remote work was not necessarily the primary reason, it did play a part in the fact that many families chose to move to smaller cities where lavish housing was available to rent cheaply.
Competitiveness of the Housing Market
With the high cost of housing, those unable to afford them would be more likely to either rent or renew when an existing lease expires. For reference, there was a 17% increase in the median price of houses sold.
Relief Program Compensation
When events, such as the pandemic happens, states and localities stepped in to implement rent freezes and other programs to help citizens stay afloat. Once these were lifted, rent price increases often reflected the totals factoring in the missed opportunities for raises.
You may have seen the term "fair market rent" being used earlier. The term, also expressed by its abbreviation FMR, speaks to the 40% percentile among rent prices in a market. Here are some of the FMR statistics in various states:
- The weighted rent price average increase nationwide was 13.7%, which was 41.1% higher than the average rent increase among states
- In Delaware, renters paid 26.95% less in 2021 than they did in 2020
- Utah saw the most significant rent price increase in the 1990s at 6.18%, which was 2.1% greater than Colorado's 6.05% increase
- In the 1990s, the greatest inflation rate was seen in the western states, with Idaho leading the charge at 5.61%
- From 2020 to 2021, there was an 8.03% FMR increase for a two-bedroom apartment.
Rent Increase Across the States
Bear in mind that there are a lot of variables that go into the information below:
- Alabama saw a 1.86% rate of change during the period, which is a total dollar difference of $180
- Alaska saw a 2.83% change for the period, which is a dollar difference of $408
- Arizona saw a 5.36% change for the period, which is a dollar difference of $708
- Arkansas saw a 2.29% rate of change for the period, which is a $204 difference
- California saw a 25.77% rate of change for the period, which translates to a $4,992 difference
- Colorado saw a 4.46% rate of change for the period, which translates to a dollar value of $732
- Connecticut saw a 20.90% rate of change for the period, which is a $2,952 value
- Delaware saw a -26.95% change, which is a dollar value of -$5,184
- D.C. saw a 15.59% change, which has a dollar value of $2,088
- Florida's change was 4.2%, which is a dollar value of $624
- Georgia's rate of change was -3.72%, which was a dollar value of -$468
- Hawaii's rate of change was 18.72%, which is a dollar value of $3,708
- Idaho's change rate was 2.61%, which corresponds to a $276 value
- Illinois had a 12.75% rate of change, which is $1,560
- Indiana had a rate of change of 2.62%, which is a dollar value of $264
- Iowa had a 2.85% change rate, which corresponds to a dollar value of $276
- Kansas had a 1.39% change, which is $144
- Kentucky showed a 6.21% or $576 change
- Louisiana displayed a change rate of 7.04%, which is a dollar value of $732
- Maine, with a 27.82% change, has a dollar value of $2,904
- In Maryland, the change was 6.14%, which was a dollar value change of $1,032
- Massachusetts had a rate of change of 38.6%, which is a staggering dollar value of $6,300
- Michigan saw an 8.56% rate of change, for a dollar value of $912
- Minnesota had an 11.52% rate of change, which is $912
- Mississippi had a 1.8% change, which was $168
- Missouri has a 3.96% change rate, which is $396
- Montana, with an 11.07% rate of change was $1,104
- In Nebraska, the change was 2.33%, which was a dollar value of $240
- Nevada showed a -2.83% change rate, which was -$396
- New Hampshire displayed a 12.12% rate of change, which corresponds to $1,668
- New Jersey showed a 20.75% change rate, which is a dollar value of $3,432
- New Mexico, with a 5.67% rate, had a change of $576
- With a change rate of 35.22%, New York had a staggering dollar value of $5,532
- North Carolina, with a 3.11% rate, had a dollar value of $348
- North Dakota has a 7.46% rate, which translates to a $720 value
- Ohio has a 6.4% rate, which is a dollar value of $624
- With a rate of 4.05%, Oklahoma has a dollar value of $396
- In Oregon, the rate is 10.3%, which is a dollar value of $1,464
- Pennsylvania displayed a 9.04% rate of change, which translates to a dollar value of $1,032
- Rhode Island, with a change rate of 12.37%, showed a dollar value of $1,548
- South Carolina had a rate of change of 1.95%, which is a dollar value of $216
- South Dakota had a change rate of 4.55%, which is $420
- Tennessee, with a 1.22% rate of change, was a dollar value of $132
- Texas had a rate of change of 4.77%, which is a dollar value of $624
- Utah, with a -4.28 change rate, translated to a dollar value of -$564
- The change rate in Vermont was 25.61%, which is a dollar value of $3,012
- In Virginia, the rate was 1.2%, which is a value of $180
- Washington had a rate of 12.14%, which is $1,980
- West Virginia, with a change rate of 6.05%, has a dollar value of $528
- In Wisconsin, the rate of change was 7.27%, which is a dollar value of $756
- Wyoming, with a 6.57% rate of change, has $648 as its value
Number of Bedrooms and Rent Increases
Considering that the rent price for a two-bedroom rental property in a location tends to be higher than that of a one-bedroom rental property in the same location, this question is understandable. However, if you look at the proportions landlords used to raise rent, you begin to see that the actual rates are not really different.
Looking back at the rates at which landlords chose to increase rent for the period 2021-2022, you find that the rates were the same. From January 2021 to June 2022, there was a 24.2% increase.
Why Implement Rent Increases?
As a landlord, you want to maintain a profit margin with your rental property. One of the ways to do this is to increase rent as time passes. Of course, you can't just raise rent with reckless abandon, even if you are only doing so at lease renewal time.
You'll put your rental income in danger if you don't keep things competitive with reasonable rent increases. Remember that tenants are battling rising costs elsewhere too, so the rental market needs to be somewhat appealing.
Apart from your profit margin, you may choose to increase the rent price for any of the following fixed or variable expenses:
- Routine maintenance
- Vacancy downtime
- Property management fees
- Property and rental taxes
- HOA fees
It's a bit of a balancing act, as you don't want the rent price to alienate potential tenants looking for housing on the local market.
Is There an Official System?
Some states will limit the extent to which a landlord can implement a rent increase. If you live in such a state, you will need to raise rent based on the set parameters. Outside of that, you have the freedom to make whatever changes you want.
Nevertheless, you still want to remain within the parameters of reasonable rent increases. Therefore, you may want to use the following to help guide how much rent you should be charging.
Consider Your Mortgage, Property Taxes, and Other Operating Expenses
One of the biggest considerations in raising rent is your operating expenses. These should never be paid out of pocket. Calculate your property taxes, HOA fees, day-to-day operations, mortgage, utilities, depreciation, etc.
This will help you understand what your rent price needs to be to turn a profit.
Other Local Renting Comps Can Be Very Helpful to Investigate
Before raising rent, you can also research other local comps to see what they are charging. Use the wider rental market to your advantage when you can. Apart from rent price information, you can gain information on benchmarks, trends, etc.
What Does the Current Rental Market Look Like?
Speaking of the rental market, it is consistently evolving, which means you need to evolve with it. One of the advantages of a property manager is that these kinds of things are typically monitored for you.
Whatever your situation is, you need to keep abreast of where the market is so you don't overshoot or undershoot your rent increase.
Communicating the Increase
Whenever you're going to raise rent, deciding on the cost is one thing. Communicating it is another. Realistically, no one wants to hear that they're about to deal with an increase, regardless of how much rent it is.
Depending on your state, you may even be required to provide a certain amount of notice whenever you increase rent.
For the sake of a good landlord-tenant relationship, you can also reach out to get feedback on the intended rent increase. There's no need to wait until lease renewal time to state your intentions.
Tenants Who Want to Negotiate
Should a landlord raise rent, a tenant may wish to negotiate. This is pretty normal as, again, no one wants to deal with increased rates for anything. Negotiations will most likely happen with tenants who plan to renew when the lease expires.
If you are interested in a further lease agreement, then there's nothing wrong with entertaining the negotiation. Realistically, listening and coming to an agreement that satisfies both sides is great for the relationship.
You are under no obligation to make changes to the intended rent price, but consider the pros and cons of going either way.
When Is a Good Time to Raise Rent?
There should usually be a good reason for you to be raising rent. So, here's a quick look at some of the situations that would align with this:
- Operating expenses are higher, and a rent increase is needed to offset them
- The cost of living has increased
- There has been a general rent increase within FMR for similar properties in the same area
- The current lease agreement allows for a rent increase
- Rent control or local housing laws allow for a rent increase
Even in cases where the law allows you to raise rent, for the sake of maintaining a profitable flow of income, ensure that your increases are reasonable and are not too frequent.
When Is a Bad Time?
Coming off the previous section, one of the worst things you can do is to attempt a rent increase in certain unfavorable situations. Some of these are as follows:
- The current lease agreement prevents you from implementing an increase
- The increase is being done retroactively
- The intended new rent price is beyond the current FMR for similar properties in the area
- There was not a proper amount of notice provided to the tenant
How to Reduce Complaints
Even at lease renewal, some people may be averse to the smallest of increases. In such cases, people may decide to seek a more favorable offer on the rental market instead of staying at your property.
While you may be justified in the new rent price based on your property value and other factors, consider the following to help reduce complaints:
- Provide some kind of non-cash incentive for the renewal of the lease
- Take steps to educate the tenant on what FMR may look like for similar properties in the area
- Give a 90-day notice so that the tenant can adjust their budget for the new rent price
- Provide a gentle reminder of late fees, payment due dates, grace periods, etc.
Tenants will often see a new rent price, and this can be motivated by a series of factors. All this contributes to the average rent increase per year numbers that you would have seen above.
If you intend to raise rent because of rising mortgage rates, rent trends, increased operating expenses, etc., follow the advice given to avoid complaints.
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