Prices in May were 8.6 percent higher than a year ago, marking the highest inflation rate in 40 years. Meanwhile, rents have increased more than 11 percent in the past year and are continuing to rise.
We are partnering with Avail, an online platform serving do-it-yourself mom-and-pop landlords, to understand how landlords and tenants are responding to the current market. The April survey, which included 1,147 landlords and 1,314 tenants, found most landlords plan to increase rent, but most mom-and-pop landlords are planning to raise rent less than the market rent increase. This suggests many tenants, who are already struggling, will face even greater financial constraints.
Most landlords plan to increase rent in the next 12 months
About 72 percent of landlords plan to increase rent in at least one of their rental units within the next 12 months. Among those who plan to raise rent, about 75 percent said they will increase it by less than 10 percent. The top two reasons they gave for raising rent were to cover increasing ownership costs (43 percent) and to correspond with increasing rental market prices in the area (41 percent). Landlords attributed higher homeownership costs to home price increases (83 percent) and increased maintenance costs (71 percent).
Despite feeling the need to raise rent, many mom-and-pop landlords plan to raise it less than what they believe to be the market rate. For example, 24 percent of landlords who said they are raising rent to correspond with the market rent are planning to raise rents by less than 5 percent. In contrast, only 6 percent of these landlords think market rents are up less than 5 percent. Only 31 percent of landlords plan to raise rent by more than 10 percent, while 64 percent of these landlords said that their market rent has gone up by more than 10 percent.
Landlords with more properties are more likely to increase rents
The likelihood a landlord will raise rent increases with the number of properties they own. Only 52 percent of the landlords who own one property said they will increase rent, compared with 92 percent of those who own more than 10 units.
For those with only one property, losing a tenant means that they will lose all their rental income. And among landlords raising rents, those with more units are raising rents more aggressively. Among those who plan to increase rents, 36 percent (19 percent of those who plan to raise rent less than 5 percent over 53 percent of those who plan to raise rent) of those who own one unit said they will raise rents less than 5 percent, versus 22 percent (21 percent of those who plan to raise rent less than 5 percent over 93 percent of those who plan to raise rent) for those that own more than 10 units. This is strong evidence that those with more properties are more willing to increase rents both because they can diversify the risk of vacancy and because they have a greater awareness and better information on market rents.
Rent increases mean tenants have less money left for necessities
The expected rent increase is likely to further strain many tenants. More than three-quarters of tenants said that over the past year, they have had less money left over each month for basic necessities. Those who experienced a rent increase were more likely to have less remaining than those who did not yet experience a rent increase.
The two most-cited categories targeted for expenditure cuts were entertainment (67 percent) and food and groceries (62 percent). Although auto and transportation expenses (including gas) are a large source of financial strain, fewer households chose to curb them. Those that curbed transportation expenditures disproportionately included tenants who had experienced rent increases.
Renters were less likely to adjust consumption on housing and education, which are largely fixed and inflexible. The survey found that those who experienced a rent increase were more likely to cut their consumption in every category, suggesting that landlords’ future plans to raise rent are likely to have a greater impact on these categories.
Long-term solutions are needed to reduce renters’ vulnerability to economic volatility
Hefty rent increases are an inevitable part of an inflationary environment. Most mom-and-pop landlords plan to cushion these rent increases for their tenants by raising rents by less than the market increase. And our prior research finds that mom-and-pop landlords who have a good relationship with their tenants are less likely to increase rent.
But with increasing ownership costs, mom-and-pop landlords could face greater pressure to compete with larger institutional investors, which could reduce affordable options available to tenants. The survey findings illustrate the important link between preserving rental units owned by independent, local landlords and protecting renters.
Currently, four in five renters who qualify for federal housing assistance do not receive it, which intensifies the impact of the inevitable rent increases. The Biden administration’s recently released plan to increase the affordable housing supply is a step toward much-needed federal support, but more solutions are needed to mitigate renters’ financial vulnerability to the changing economy.
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