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Rental Rates Seriously Outpace Wage Increases

By Brian Kline | October 13, 2015

The U.S. inflation rate from August 2014 to August 2015 has been a mere 0.2 percent. The U.S. Bureau of Labor Statistics reports an annual average wage increase of 2.0 percent for the same period. That would indicate an increase in spending power. But not so fast. Property mangers expect to raise rents an average of 8 percent as 2015 begins to close out.

In fact, a survey representing hundreds of thousands of rental units finds 88 percent of property managers raised rents over the past 12 months and 68 percent predict that rents will raise another 8 percent in the coming year. That is nearly 4 times what the average wage has increased over the past year.

Considering that, consumer buying power is going down when you realize that approximately 30 percent and up to 50 percent of most household income goes to putting a roof over the head of the family. The situation for renters is not likely to get better any time soon. As tight as the rental market already is, 46% of property managers report a decrease in the vacancy rate.

Rental Properties

Rental Properties

Photo Credit: mjlmadison via Compfight cc

According to data from the U.S. Census Bureau, the overall vacancy rate is at 6.8 percent, the lowest it has been in almost 20 years. For the most part, landlords are not planning to offer any incentives to attract new tenants for the foreseeable future.

New York and San Francisco remain the most expensive cities to rent in the U.S. Rents in San Francisco surged 14% to $3,530 year over year for one-bedroom apartments available in September. A separate analysis of one million listings of 50 cities by apartment rental site Zumper found they rose by over 5% to $3,160 in New York. Rent has also jumped in secondary cities such as Oakland, Calif. (up 23% year over year to $2,030), Jacksonville, Fla. (up 16% to $870), Kansas City, Mo. (up 15% to $770), and Fresno, Calif. (up 17% to $770).

In the toughest markets, it can cost as much to move into a new apartment as it does to make a down payment to buy a house in lesser markets. On top of broker fees to find an apartment, landlords are demanding significant deposits. For instance in Brooklyn, New York, an apartment with a $2,000 monthly rent, can cost a brokers fee that amounts to 15 percent of the annual rent that translates into an up front $3,600 broker fee, $2,000 deposit, and $2,000 first month’s rent. That amounts to $7,600 in move in costs.

Overall, it's good for landlords and investors but it might not be so good from a total economic perspective.

Please leave a comment if this article was helpful or if you have a question.

BioAuthor bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for nine years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News
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