Regardless of what part of the country you live in, it’s probably fair to say that your rent is not getting cheaper by the day. In fact, most tenants probably experience a small rise in prices every year. But if you don’t even own the apartment, why does it cost so much?
All the costs of maintenance, taxes, insurance, repairs, government rules and regulations, local demand, and the number of alternative housing options are all factors of how much your apartment costs.
While it may seem like your landlord is just handing you the keys to a unit that has always been there and always will be, there is a lot more to why your apartment costs what it costs.
The ultimate reason your apartment costs what it does is due to The Demand for Apartments. Apartments are just like anything else, the more people value them, and the more money people are willing to give for a particular apartment, the more those apartment units are going to increase in value.
Part of what makes demand is the Location of the apartment complex. If it is located in downtown San Francisco or New York City, it is going to be many times what the same size apartment would go for in Rapid City, South Dakota. There are simply more people bidding on a place to live in those heavily populated areas. So, while the price may be objectively high to you, there are other people that are willing to pay that price.
The demand for apartment complexes usually goes up when there is an increase in the interest rate, which makes it more expensive to buy a house, and more economical to rent an apartment. However, in the United States, the high wages, when compared to most other countries, allows a higher percentage of the population to afford their own, individual apartment units.
Even when the number of households owning homes is skyrocketing in the United States, there is still a HUGE demand for apartment housing.
Another thing that makes it more expensive to own and operate an apartment complex is due to government rules and regulations. The more regulation apartment complex owners face, the higher it costs to own the apartment complex, which means they have to raise their rent just to be able to offer housing.
Governmental zoning laws also restrict where and how big apartment complexes could be. Many people don’t want high rise apartment buildings in their neighborhood unless they live in a downtown, urban environment. People just tend not to want their sun, air, and view to be blocked by a massive building. There is also the concern that there are inherently more problems surrounding apartment building simply due to the fact of the number of people that live inside them. There is simply a greater chance for things to happen than a quiet residential street.
With a growing population, tight restrictions on where to build make it hard for landlords to keep up with demand.
Why Do Apartments Increase Rent?
Apartment complexes increase rents because their own costs of doing business have increased as well. Additionally, in highly dense areas like Manhattan and downtown Chicago, apartments will go up in price due to the demand for the units.
Just like everything else in the world, when there is inflation, prices are going to rise for everything, including your apartment. The typical raise in apartment rent is somewhere between 2%-5% per year. This is standard, and while it is frustrating having to pay more for your apartment every year, generally it is simply a reflection in the rise in prices for most goods and services.
When landlords raise the rent, it’s because if they don’t, they won’t have enough money to make the repairs, do the maintenance, and pay the taxes for the apartment complex, and won’t be able to provide the complex as a place to stay for dozens if not hundreds of families.
When Do Apartments Go Down In Price?
Apartments CAN go down in price for a couple of reasons.
Ultimately, the demand for the apartment complex is lower. Sometimes this can be because a company or corporation moved out of a location and took a lot of jobs with it. Now there aren’t as many people looking to get into apartments in that location. So, to keep the apartment complex as full as possible, the landlord will lower their price.
Possibly, if there are several other apartment complexes that have just been built or newly renovated, that is going to make the supply of apartments much more than it previously was and cause the complex that isn’t newly renovated to be in less demand. In these cases, the landlord will be forced to lower their rates in order to attract tenants.
Additionally, if there is something bad that happened in or around the apartment complex, the demand for those apartments could fall. People don’t want to live in that apartment complex or around the vicinity for whatever reason. The landlord will be forced to lower the rent simply to attract people back to that apartment complex.
But until the number of people being born and coming into the country goes negative, there are going to be more and more people looking to rent apartments, and thus, the price of those apartments are going to continue to go up.
Do Landlords Increase Rent Every Year?
This depends on what your landlord says about rental increases. Some landlords have their stated rent raise for the year stated in their lease. This way, the tenant knows upfront that the rent IS going to increase, and by how much, by this time next year.
It can also be a good incentive to sign a multi-year lease contract, which would lock in the price of the rent for a couple of years.
Landlords do this because, on average, they know how much more the cost of doing business is going to increase in the period of a year. So they factor that price change into their lease right at the beginning to compensate for this.
Doing this prevents them from making tenants mad about random rental increases that seem to come out of nowhere, and simply establishes expectations that the rent WILL go up every year by a certain amount.
Apartments cost so much because they reflect the demand of the apartment complex in any given area. This can be because there are now more alternatives to choose from for potential tenants, if something negative happened at the apartment complex or surrounding area that make living at the complex less attractive, or if the primary businesses in the area have laid off or left, in which case there are going to be fewer people bidding on any particular apartment.
