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There’s Only One Way Rents Will Go: Sky High

Marine Cole
There’s Only One Way Rents Will Go: Sky High

Since the recession, the demand for rentals has continued to rise steadily, and real estate experts are predicting that rents will continue to rise for the foreseeable future.

The 2014 Property Owner and Manager Report claims that 85 percent of property managers raised their rental rates over the past year, according to a report from Rent.com released earlier this month.

Related: Tempted To Become a Landlord? What the Pros Know

“They don’t expect things to slow down either,” Rent.com noted in a press release, as 63 percent of property managers predict that rental rents will continue to rise by an average of 6 percent in the next 12 months.

Here are four reasons why rents will continue to climb:

Gentrification. In cities like San Jose, San Francisco or even in Brooklyn, New York, the tech bubble, as well as hipsters, have pushed rents higher, making it harder, even for middle-income residents to afford living there.

According to research firm RealFacts, “the East Bay and North Bay are ‘echo markets’ where rents are rising and likely to go higher,” reported the San Francisco Business Times on Monday. “That’s especially true as residents are forced out of increasingly wealthy enclaves such as San Francisco.”

Not enough supply. Even in Southern California, where the availability of housing has typically been plentiful, it has become more challenging to find affordable rental properties as new construction isn’t keeping up with demand.

“Rents continue to rise throughout the region as the demand for rental housing outpaces the completion of new units,” according to a study from the University of Southern California’s Lusk Center for Real Estate released at the beginning of October. “The average rent in all four regions [Los Angeles County, Orange County, Inland Empire and San Diego County] is projected to increase every quarter for the next two years.”

Related: The 9 Most Expensive U.S. Rental Markets

Job growth. This is also true in the Las Vegas area, where low supply of rentals coupled with substantial job growth has increased demand and prompted landlords to increase rents.

“Housing experts say as more people get jobs, rental rates go up,” KLAS, Las Vegas local TV station reported last week. “What used to go for $700 a month, for a two bed, two bath just a few years ago, we’re seeing things go up between $850 and $950 a month now for the same thing,” leasing agent Karen Sommer told the station.

Fewer Americans are buying. If millennials aren’t living at their parents’ home, they’re likely renting and piling like sardines in apartments to make monthly payments. Additionally, even older Americans who did own prior to the recession are now renting for various reasons including lower credit, lower wages or simply unemployment.

“The recession caused an influx of homeowners swapping their large homes for smaller apartments,” said Rent.com, noting that 50 percent of property managers noticed an increase in former homeowners seeking apartment rentals since 2013. “With the millennial generation underemployed and facing high student loan defaults, it’s not surprising most are unable to afford mortgage payments or may lack the credit to apply.”

Related: Why First-Time Homebuyers Should Get Their Checkbooks Ready

What does it mean for renters and the economy? Renters should be prepared to not only pay more for housing but also to benefit from fewer concessions.

“The shift to lower vacancy rates has allowed property managers to transition from pushing concessions and compromising on rental rates, to increasing rents and forcing stricter application policies,” Rent.com said in its report.

Even if unemployment is falling and more people are finally being hired, it doesn’t mean they have the extra income to pay inflated rents. Paying more for rents means that consumers will spend less in other parts of the economy or that they’ll save less.

How can renters avoid the hike? While it’s hard to avoid paying more, there are ways to mitigate the increase, such as searching for housing in the low season, the fall and winter, and doing in-depth research to fully understand a neighborhood and how much you should pay for certain amenities.

Renters may be forced to renew their lease and ask for longer lease terms rather look elsewhere.

“Renewing a lease at the end of 12 months opens the door for landlords to increase rent,” Rent.com noted. “However, by signing a lease for 18 to 24 months, renters can lock in their rates.”

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