Article “Rising rents raising risk of inflation” reports “.. the biggest threat to containing inflation may be the shift away from homeownership, which is pushing up the cost of leases across the nation’s 38 million rented residences.”… Effective rents in the first quarter, or what tenants actually paid, rose in 75 of the 82 markets tracked by data provider Reis Inc., which said the average was up 2.5 percent from a year earlier to $991 a month.”
WATCHDOG: Some landlords in some markets are pushing rentals very aggressively, both for new renters also on those renewing. But the national average of an annual increase of 2.5 percent indicates inflationary pressures are not out of line with the rest of the economy.
How many home owners believe that their annual costs for taxes, utilities and maintenance are not up by more than 2.5 percent?
In fact, the 2.5 percent increase trails the federal “All Items Index” for twelve months through April, 2011 of 3.2%. Here is an excerpt from the Bureau of Labor Statistics:
“The 12-month increases of major indexes continue to climb. The allitems index rose 3.2 percent for the 12 months ending April 2011, the highest figure since October 2008. The energy index has now risen 19.0 percent over the last 12 months, with the gasoline index up 33.1 percent. The food index has risen 3.2 percent while the index for all items less food and energy has increased 1.3 percent; both figures represent increases over recent months.”
Rates charged recent renters are often higher than those for those renewing their leases. Many landlords want to avoid any vacancies and the added costs of marketing and renovating units for re-rental.
The largest increases in rental rates occur when properties are sold. The new buyers have paid a high price with the hopes they can profit through both reducing services and jumping rent costs. They often figure that after a couple of years they will sell the apartment complex to groups of doctors or lawyers (or their like) based upon a recent surge in profitability, even though over the long term their actions will reduce the value of the property through postponed maintenance and turnover of their long term residents.
With the advent of Facebook and other Internet sources of consumer comments, prospective renters can make more knowledgeable choices. This should also help discipline the marketplace. The Watchdog’s experience is that tenants are prepared to pay a premium to live in a well maintained, well serviced community.
My father was a part-time landlord who bought up many single, two family, and multi-family homes and cut them up into more units until he had more than 150 . He was a very good man and a fairly good landlord.
A good landlord maintains his properties, respects the rights of tenants, and charges rents based upon a fair rate of return (profit). The problem comes with deciding what is a fair return? In business today, generally, there is no consideration for what rate of return is fair but what only what is possible.
The magic of the market determines what is possible and this is assumed to be fair because this is how we define “Fair”. If falling home prices and foreclosures, create higher demand for rental properties then “good” landlords have the market’s permission and encouragement to entertain new and better possibilities. This is how our system works. We are not in charge, the markets are.
When Hershey foods took the humble “York Peppermint Patti” to Mexico it was not because this inexpensive and fully automated processed item could not be made in Hershey, PA at a very respectable profit, but that Mexico would provide even larger profits and larger profits were necessary to sustain the market where these little candy bars are sold, US convenience stores where it no sells for $1.09 or about 10 times the cost of manufacture.
But candy bars are not a necessity while decent, affordable housing is. But the process of determining the market price of housing proceeds like any other commodity. The argument is even made that to sell (rent) under the market established price is actually to give a gift but without benefit of a charitable tax deduction. But even if a landlord decided to give the gift in cash to a tenant of, say, a hundred dollars a month, they then (obviously) do not have that $100 a month for their own aging parents, perhaps, or their own escalating health insurance costs, or college educations for their children and grand children. Instead of hopelessly agonizing over this, they let the “magic of the market” determine the price for housing and assume it is “fair”. If people cannot afford it that is not their concern any more than a tenant’s struggle to pay the increased costs. Exxon does not worry about the significant doubling of workers commuting costs so why should landlords. (“hey” equals not only landlords but all of us who support our magic market system)
We need decent affordable housing and there are only two ways to get it. First (and most preferable) is that working people be paid a “Living wage”, and are therefore able to afford it. Second, is that decent housing be subsidized (which is actually is a subsidy to the low wage employer and the landlord).
Both of these solutions are also forbidden by the magic markets because the “fair” wage is determined like any other commodity, except in reverse. A “Fair wage” under our magic market system is not what it takes for a person to live decently but only the wage that it takes to encourage someone to take the job. Millions more looking for jobs than there are jobs to be had lowers the wage “price”. Substandard housing and slums therefore proliferate.
Government subsidized Housing for low and middle income persons was a problem in our free market system until we found a way to actually subsidize and seduce our capitalist leaders, i.e, our low wage employers, private developers, bankers, architects, law firms, management firms etc. From time to time these private entities have seized upon the subsidized housing business where they also helped HUD and state housing authorities to determine inflated “fair market rents, fair developer fees, fair architect, legal. general contractor, and management fees, plus a fair return on “investment”.
Sort of like price fixing. It is another good example of how an otherwise free market capitalist becomes tolerant of socialism by becoming its chief benefactor.
Subsidized housing with its inflated fees and guaranteed returns (after inflated expenses) has corrupted so many government agencies, politicians, and developers, including church sponsored ones, that it should be the deal of last resort. It any case, it always increases government dependency with a concomitant loss of self esteem for the tenants, tenants who seldom realize that the biggest benefactors of “their housing” are the ones who are least in need.
What we do need are jobs which pay a living wage, in order that people become able to afford, and to choose, decent housing on their own. The question becomes, What do we think the chances are? Our answer should go a long way towards giving us an understanding of why we have so much substandard housing, slums, family instability, despair, abortion, crime, and the general ugliness of our inner cities.