Renters beware: Double-digit rent hikes may be coming soon amid rental vacancy rates that have dipped below the 10 percent mark, where they had been lodged for most of the past three years.
“Young people are starting to get rid of their roommates and move out of their parent’s basements,” said Peggy Alford, president of Rent.com, predicting the vacancy rate will hover at a mere 5 percent by 2012. With fewer units on the market, prices will explode.
Rent hikes have averaged less than 1 percent a year during the past decade, according to Commerce Department statistics, adjusted for inflation. Now, Alford expects rents to spike 7 percent or so in each of the next two years — to a national average that will top $800 per month.
In the hottest rental markets, the increases will likely top the 10 percent mark annually for the next couple of years. In San Diego, Alford anticipates rents will rise more than 31 percent by 2015. In Seattle rents will climb 29 percent over that period; and in Boston, they may jump between 25 percent and 30 percent.
This is a sharp change from the recession, when many Americans couldn’t afford to live on their own. More than 1.2 million young adults moved back in with their parents from 2005 to 2010, said Lesley Deutch of John Burns Real Estate Consulting. Many others doubled up together.
As a result, landlords had to reduce prices and offer big incentives to snag renters.
Now that the recession is easing, many of these young people are ready to find new digs, mostly as renters, not owners. Plus, the foreclosure crisis continues unabated, and the millions losing their homes are looking for new places to live.
Apartment developers many not be able to keep up with this heightened demand, which will force prices upwards, according to Chris Macke, a real estate analyst with CoStar, which tracks multi-family housing trends.
“There will be an envelope of two or three years,” said Macke, “when the rise in demand for rentals will exceed the industry’s ability to meet it.”
Plus, Alford added, “there’s been a shift in the American Dream. We’re learning from our surveys that a huge proportion of people are choosing to rent.”
They’ve experienced the downsides of homeownership — or seen friends and family suffer — and don’t want to take the risks or pay the higher costs of homeownership.
Where homeownership costs are particularly high, there are many more renters than owners. In Manhattan, for example, only about 20 percent own their homes; in San Francisco, about of third of the population does; in Los Angeles, less than 40 percent; and in Chicago, about 44 percent.
There’s one factor that could rein in rent increases: the huge number of foreclosed homes that could hit the market over the next few years.
In many markets, like Phoenix and Las Vegas, there are neighborhoods filled with recently built, single-family homes going for fire-sale prices. When the cost of owning homes falls well below the costs of renting them, more people will buy.
“That’s always been the biggest competition for rentals,” said Deutch.
Landlords, beware, there are plenty of rentals staying vacant well over 3 and even 6 months, so if you try massive increases with a good paying tenant, you will lose.
The rent is to DAM high!!
This article is (darkly) hilarious. Are we supposed to take the spokesperson of Rent.com (who, surely, benefits from increased activity in Apartment Land) seriously? This is wishful thinking taken to the extreme.
Oh, and did the recession end? I’m sure millions of Americans would get a chuckle out of that.
No, this is lazy journalism. Someone took a press release (from, say, Rent.com) and turned it into an article.
Dear Chicago Tribune editors –
Posting this article is below your abilities, and well below what the public deserves from a newspaper of the stature of the Chicago Tribune.
Other commenters have correctly noted what a ridiculously thin factual basis there is for any assertion that rents are likely to rise at any clip near what the ‘experts’ in the article predict. Quoting the president of rent.com is like quoting the chief economist of the National Association of Realtors about home prices.
Have you learned nothing from years of reporting on David Lereah, then the chief economist for the National Association of Realtors, and his views on home prices? Would you recommend we read his 2006 book “Why the Real Estate Boom Will Not Bust – And How You Can Profit from It”? Thousands of foreclosures have taken place over the last four years, with thousands of families ruined – despite the opinion of ‘experts’ who are part of the real estate brokerage establishment.
At this moment, there are tens of thousands of vacant homes across Chicagoland, enough that your own reporters are covering whether banks are maintaining their lawns, and whether they are causing blight in areas where they represent a near-majority of homes. With tens of thousands of surplus homes, an enormous ’shadow supply’ of investor-owned, unoccupied condos downtown, and plenty of half-finished projects that could be completed in short order, it’s hard to read this article and not laugh at the claims that adequate housing supply may be a concern in just 24-36 months. Apart from the supply side of the equation, this is further the case given that demand remains constrained, as the job market is flat on its back, with job growth still modest as the jobs recovery remains weak.
Quite frankly, the Tribune’s journalism helps shape the public’s expectations and your influence is powerful within the Chicago area, given your local concentration of readership. Printing ill-researched articles, re-printed complete with basic grammatical errors from CNN(!), like this is not part of your mission – you should be ashamed.
Jim in Chicago
You hit the nail on its head-about this article and about Tribune reporting in general over the last few years. Now back to reading the online non-print news sources where I can compare data and stats…..
I just hope this is yet another sign of the economy improving. My rent hasn’t gone up in two years because they’re so glad I’m still living there. I’d welcome a rent increase if it meant I had steady work along with it.
Raise the rent through the roof and get rid of the bad element!!!
My landlords in “toney” E. Lakeview locked me into a 2 year lease so as their property wouldn’t sit vacant for 3 months like it did before I leased it. There are vacancies and foreclosures EVERYWHERE around here.
My prediction? If anything rental prices will go down as more of these “condo owners” default or strategically “walk-away”, or the condo buildings themselves revert back to all rentals. They’ll want at least 1/2 of the units occupied in each building.
How will increase in foreclosures decrease rent. When a building forecloses that means it’s off the market. That means the supply is going down. Down supply = higher prices.
How about some figures to go along with your report. Gosh, such shoddy reporting. How about the average price of a one bedroom rental over the last 5 years?
Maybe the thousands of home owners whose houses and condos aren’t selling should start renting them out, too. Give those who rent enough choices and more competition, and rent prices will have to come down. Ooops, sorry, I was acting as though this article is to be believed.
How many years in a row has a veritable clone of this article been run?
Did I miss the “advertorial” label?
CHOOSING to rent? No, that’s all we CAN do.
http://archive.chicagobreakingbusiness.com/2011/03/rents-could-jump-double-digits-as-vacancies-drop.html
I quit buying the Suntimes for the same reason. They were reposting articles from other sources, giving proper credit, but overall being extremely lazy journalists. I was thinking of switching to the Trib, but changed my mind because they’re doing the same thing and it’s no longer worth paying the cost of the paper just to read CNN and AP articles that appeared online the day before in the original websites.
As for rising rents, I say go ahead and raise ‘em! Landlords unchecked greed will lead to an increase in home values as beleagured young people flip them the bird and move into homeownership.
I have a two flat that I rent out and here’s how it goes: My mortgage with taxes is $2,600/mo and the rent I collect from two apartment is only $2,250. I provide heat in the building and with $1,500 property insurnace and $800 annually for city water/sewer, I end up losing $1,000 month on this building. Check out property Taxes on any decent two-three flats in the city and you won’t find them below $5,000 (if they’re owner-occupied). $6,000 if non-owner occupied.
Raising the rent always has consequences. Does it remove “the element” that seems undesirable? Maybe, maybe not. Before you rent somewhere, look at the cars in the parking lot. That tells you a lot more about who’s in there than the leasing representative.
To the poster who has a two-year lease, make sure that your landlord doesn’t try to stick you with an increase if it is not in the contract. If your contract is favorable to you, RECORD IT WITH THE RECORDER OF DEEDS. This gives public notice that this contract exists and that in and of itself gives you protections if you land in housing court.
Another crock of fece……….people all over this country are losing their homes including renters, who find out that their 2 and 3 flats or better are falling into the economical waste pan. If you are an owner and still provide heat for your tenants, bad MOVE, I learned over 20 years ago to invest in individual heating for tenants……I have had units remain empty for almost a year, stable community…..nobody want to take a chance in tody’s market, even investing in a new apartment…no job security!!!!! I guess with all of the tax increase and thivery by our elected official, why not take another bite out of the gullible public
try maintaining those properties without any tenants for a couple of years, especially for those who don’t live on site
To “Watcher”, I would say you are misinformed. It has become common practice for drug dealers to pay cash for high-priced units because they are able to afford it. The “better” neighborhood and neighbors not willing to pry make it a safer place to do business. So, go ahead and raise the rents, but don’t expect that to improve the tenants. I agree with the posters who said this was a poor excuse for reporting. No real substance and plenty of wishful projection.
Renters won’t be helping landlords try to cover their ‘equity’ loans anymore. Sorry if you’re monthly income statements are ‘upside down’. Looks like that’s a permanent scenario for you. Furthermore, it’s not the renters fault that you bought pre-bubble not having the common sense or knowledge that us “dumb” renters had.
@LAB: leases don’t mean much. No need to go through all that trouble. I was in a courtroom with a landlord 20+ years ago and the judge didn’t even want to see the lease after hearing my argument. Obviously, I won.
I’ve been in 3 different lease situations paying rent over $1,000 in 2 of Chicago’s “better” neighborhoods. Usually within 2 months of taking occupancy, there’s justification for the tenant breaking the lease. If it’s not a roach problem, it’s the condo “owners” right below you smoking weed day/night – indoors, sewage backing up into your bathtub, electrical problems, putting “timers” – not a thermostat – on the boiler for the “heat included” apartments. I’ve seen it all with these landlords here.
Out here in the Phoenix AZ there are so many vacant apts they cant rent; its not even funny. Everyone bailed when the job market crashed. They get somewhat filled when the snowbirds are in town; but come April; they will be a ghost town until next fall. Only problem is; most apt complexes out here are cesspools for scumbags since they will rent to anyone with a pulse; no questions asked.
Sounds to me like all the renters are the one’s whining and moaning. Well, this landlord hasn’t raised rents in 3 years, and my properties are due. I’m thinking a 15% increase this summer will be perfectly feasible; there is a never-ending supply of Big 10 talent pouring into this city every year. If you don’t like it: move.
I second the request for more facts and some unbiased predictions to go along w/this article. I would like to see the average price of a studio, one bedroom and two bedroom unit in the city over a 5 year period; break down these numbers by neighborhood or segment of the city (north side, downtown, west side, south side). Please include projections (provide “high” and “low” rental increase scenarios) for the next 5-10 years. (This article, IMHO, is the “high” rental increase scenario.) Talk to economists, urban planners and anyone who can lend unbiased insight into this matter.
With more than 50% of the city’s residents renting housing I would think several well researched articles would be appreciated.
@Lab: so you think expensive cars in the parking lot is a measure of a “good element”. Really? A lot of very unsavory types drive around in fancy cars. Think about it.
LAB, may I ask where were those better neighborhoods? I’m giving serious thought to renting significantly more expensive housing. I’m considering studios that don’t rent for less than $1400/month. Why? Because in the last three years I have had SEVEN neighbors from hell. SEVEN in three years in my budget-friendly apartment buildings.
I’ve rented in buildings in which my bad neighbors were paying $1000-$1100. Well, they weren’t paying it. Not really. They were always late on the payments, they missed payments all together or their parents were paying the rent.
OH – Sorry, Lab. My previous question was intended for NoDifferent.
The reasoning is sound. Folks who cannot buy homes or are worried enough to not buy now will remain in rentals. Foreclosed homeowners have to have a place to live. Apartments are an answer.
Landlords many places have not been able to pass on higher taxes and utility costs because vacancy rates are high enough that they risk losing good tenants. But as vacancy rates decrease, they will have more ability to pass along those costs.
Plus, apartment construction hasn’t been as high as normal, thanks to the difficulty in getting financing.
Renting already has been the only option for people living in areas where home prices, even at the bottom, were way too expensive for their budgets–coastal California, Seattle, NYC, Boston, etc.
“Young people are starting to get rid of their roommates and move out of their parent’s basements,”
Yeah, that is what is happening. Not the fact people are being foreclosed on left and right. These people are brilliant.
I rented 1/2 my adult life, I’m 72. Now I own 2 2-flat’s and live in my payed for, bungalow. I can tell you insurance costs me a total $2K and is going up 21% next month. Taxes have tripled in the past 7 years. So, when you ***** about the price of rent, maybe you should move back in with mom & dad like my 48 year-old did..
That’s funny. Crain’s is reporting yet another south Loop condo building is reverting to rental units.
To renters that think flipping the bird to landlords that raise their rent and go buy a place, I say good for you. Buy my place! Why flip the bird though?
I am a landlord that has a condo that costs me $4,000/ mo $2,300 in mortgage, $700 assements, $1000/ mo in taxes and insurance. My rental income is $2,500 for a net loss of $1500/ mo.
Why not sell you ask? Can’t get qualified buyers thanks to the bank collapse in 2008 which drove the economy into the ground.
Of course I’d like to charge more and of course the tenant to would like to pay less. It’s simple economics folks, supply equals demand and people will pay what the market dictates. I’d rather sell at a huge loss than deal with whiny renters though(not that I wasn’t a whiny renter a while back). I’m just saying that being a responsible landlord SUCKS!!
I learned more from the comments than I did from the article. As a landlord , I am reluctant to raise my rents even minimally because so many people are out of work and salaries are not rising.
Go cubs.. So you over paid and whos problem is it?? You didnt say when you bought. Jim in Chi. Outstanding. If you trust financial news from MSM you will always be mis informed. I wonder how much landlords paid for this crock? Youll get a much better deal from Go cubs. im sure a better landlord to.
and one more thing. Heres the key.
Young people are starting to get rid of their roommates and move out of their parent’s basements,” said Peggy Alford, president of Rent.com, predicting the vacancy rate will hover at a mere 5 percent by 2012. With fewer units on the market, prices will explode.
always consider the source of the info. Or blather. Remember when the NAR kept saying houses would always go up. how did that work out? Heck they still get it wrong. Why? They have a self serving interest. Remember that folks. do you really think Peggy wants people to flip the landlord bye and buy? doubt it
Enjoy your vacancies at a 15% rent hike, Edward.
And don’t worry–the people who don’t like it will move. And the people who don’t like it won’t move in, either. They’ll get a better deal on a home instead.
Renters can complain. If they complain so much they should buy a place, oh, they can’t, because of their credit card debt and credit is shocked and job insecurity!
Once the economy improves, and it is improving, it will become the landlord market again. Gas is heading to $4.5+/gallon, people living in the suburbs will be moving back to the city to reduce driving cost. On top of that, many people now won’t be able to buy anymore due to fear or no ability to buy, it will be landlord’s market once again.
Tenants were the king for the last few years but the tide is changing.
Never buy anything as an investment that eats or has to be painted.
why is the media always advertising price increases? please do not tell me what might happen, because most likely you will make it happen by hyping it up. i never hear gas prices should go down dramatically in the next few days
It boggles the mind how many posters here who have units to rent obviously went overboard when it came to their financing. I can’t feel sympathy if you were one of those who hoped to “flip” and then the market cooled.
Mike Bachenberg, you are a perfect candidate for a strategic default. You can:
You can stop paying your mortgage on your rental.
Fight the foreclosure in court for less than 240$, and one week a month.
Accept the renter’s payments, and save it in a hiding place.
I’ve fought my foreclosure for 17 months and counting. At 2500 a month, you could save 40K.
The banks are reluctant to take control of condos since they don’t want to pay assessments.
I should know after defaulting on my 400K Chicago nightmare. Living rent-free is the better than a cash-out refi!
@Mary: Don’t worry, I’ve been in this business for years, I’ve never had vacancies for more than a month or two. I’ve seen the ups & downs, and the ironic thing that’s happening is since most of these folks nowadays have been paying $1500-2000+ for rent in the city for so long, spending who knows how much drinking on the weekends, they can’t afford to buy!!! Plus, don’t even bother trying to buy if you can’t put at least 20% down. Not to mention that there’s a never-ending amount of graduates moving into the city. I’ll take my chances, Mary. Like I said, my rates were flat since 2008, and that was long enough.