Stop Rent Price Erosion
If you’re staying up to date on the latest news on rent prices across the US, you might see the rate of growth has plummeted. And now rent prices are actually falling, especially in the southern half of the US.
In the North and Midwest, they’re staying fairly level, mostly due to a lack of availability and affordability. Rents have certainly hit a severe pain-inducing point, so counting on higher rents might be questionable.
The fact is, rents are coming down the other side of the mountain and Joe Biden is starting to talk about support for the housing market. The Presidential election could be a catalyst for lower rents in 2025. Home prices according to NAR are declining now too.
As you’ll see in the charts and info below, rent concessions are 6 times higher than in 2019. It looks like we’re into a new era of tenant/landlord business.
Dependency on Rent Revenues
If your rent revenues are stagnant this year, you may want to seize on other opportunities to avoid vacancy and turnover losses. As you know, turnovers can be very expensive.
Relying on a property management platform to keep tenants satisfied or preparing well for renting it quickly at the same price is a wise choice. And using your software’s automation and integrated services to improve workflow is wise.
Costs are a factor going forward. Are your property management company fees, income taxes, property taxes, landlord insurance, HOA fees, staff salaries, financing, renovation, appliance purchases, and leasing and marketing costs declining? More likely they will rise in 2024/2025.
Rents in the South, Northeast, and West Falling
The multifamily building boom in some major cities in the south and west has put downward pressure on rents. At the same time, all landlords face high refinancing costs and the inevitable return of inflation as the economy gets rolling. It’s challenging to be a landlord!
For landlords in the South, falling rent prices are going to hurt the bottom line. As the economy recovers, rental unit occupancy will decline (more renters choosing to buy) and more workers will leave due to return to office commandments.
For renters across the country, rent prices are up 3.3% year over year so there’s no mercy for most tenants. They will be desperate to break leases and find anything that’s affordable. We can reasonably expect more broken leases (growing interest in subletting and lease transfers) and increased demands for service and amenities. In other words, the rental must be more than a place to sleep.
As single-family home rental prices increase (up 23.1% since 2020 despite a small rise in worker incomes) they are affordable to a smaller slice of the rental pool. When a landlord loses a house tenant, getting another to pay sky-high prices will take longer, especially in the South and West.
Incentives are the Route Some are Taking
32.7% of rentals on Zillow advertised concessions (in December). That includes lease modifications to incentivize renters such as rent discounts, new appliances, lower security deposits, etc. It is 10.1% above the same time last year in 2023. Rent advertisements involving lease concessions rose in 47 of the 50 largest metro areas.
Zillow’s research shows those cities where the share of listings featuring concessions rose a whopping 26 percentage points: Salt Lake City (+26%) Charlotte (+21%), Columbus (+185), Dallas (+17%) and Atlanta (+15%). So the trend is real. Combine those stats in North Carolina in particular where rent prices have dropped a corresponding amount and you see some landlords are in peril. Greensboro, Asheville, Winston Salem suffered the highest year over year price drops.
Zillow stats reveal landlords in Raleigh (+12%) and Charlotte (+16%) are needing concessions to get leases signed.
Your Rent Price Erosion Response
Clearly then, landlords need to open their minds to more creative value propositions. Long term, when landlords become more creative, their businesses become more resilient and successful.
In our previous post, we described the best renter concessions and about how to protect your revenue , manage your budget and how to manage expenses more professionally. These are great articles to refer to to make your business bulletproof.
Here are some quick tips to help you avoid rent price erosion so you don’t need to offer concessions and discounts:
- increase your marketing/advertising spend — there’s no better antidote than to raise the perception of the value of your rentals.
- focus on the tenant experience — improve the satisfaction your tenants get from your rental/building by speeding up responses, listening to them, and avoiding “situations” where they will leave
- offer new value-added services/amenities — upgrade your services or property and make it more difficult for tenants to leave
- go with energy-efficient appliances — new energy-efficient appliances show you’re conscientious about the climate and savings money.
- keep up on local market demand — find out what renters out there are looking for and adapt your properties to their wants
- offer longer-term leases – a price discount to stay with current prices is actually a bonus because more renters intend to leave
- adopt a digital services platform — automate rent payments, enable online transparency about maintenance and repairs, and give tenants online access to documents
- offer incentives for lease renewals – give them the kitchen, insulation, or appliance upgrade they want or a first-month price break for long-term leases
- show appreciation — demonstrate you care about them and want them to continue with you
- do inspection and maintenance — and fix everything that’s broken (screendoors, windows, flooring, cabinets, faucets, lighting)
Responding compassionately to your tenant’s discomforts is the major thrust of a rent price protection strategy. The greater value of your readings in property management is in being inspired to make it profitable by being good to your tenants. Success is here for anyone who wants it.
If you’re ready to investigate more thoroughly, we can be reached at 1 800 415 1245.
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