| |

Rent Increases Explained

The Rising Cost of Everything

We’re all feeling the pinch a little right, well not all, but since we’ve moved on from lockdowns and COVID-related restrictions I’d say most people have felt the rising costs of living – maybe it’s because we’re now out there living!

The cost of flights are currently ridiculous, and groceries and electricity prices keep going up. Private Health, phone and internet costs don’t go down even though those companies are playing games with our private info.

This is by no means a Blog to justify rent increases as the market generally does that itself, but I think it’s all relevant and important for tenants to understand why rents increase and also for landlords to know the ins and out of rent increases.

Are Owners and Tenants feeling it the same way?

Most significantly, in my non-finance world opinion, is the cost of property. Whether you own it or rent it the costs have and are continuing to increase, they’re just a different set of costs. For example, with regular and consistent rises in interest rates, these directly impact landlords, and with with low vacancy rates and low supply in available rental properties, directly impact tenants. Hence why we are seeing upwards movement to rents in these last 4-5 months.

You see, it’s not just interest rates despite all the media attention and monthly breaking news announcements it’s a property owner’s other holding costs as well such as Council Rates, Water Rates, Strata Levies or Land Tax, insurance, etc. Then we have maintenance and materials costs which regularly increase due to the lack of supply of both materials and tradespeople generally. Bargaining is out and being grateful for securing a Tradie is in.

So yes, being a landlord continues to get more and more expensive, the outgoings go up and over the past 2 years, the income hasn’t had any substantial growth. We haven’t seen this lack of supply for some time so that has also made it doubly competitive for prospective tenants, meaning that most tenants who receive a rent increase are accepting of it. No one welcomes it but most understand the flow on effects and the general rise of living costs at the moment.

Tenants obviously then feel it too, we all have the cost of living and everyday expenses that are non-negotiable. The most significant that I hear of are utilities and child care.

“I think a rent increase can be seen to be reasonable if there are comparables that are real-world / realistically comparable”

The Stress of the Search

It is clear that there is a shortage of quality and available rental properties and what follows is the stress caused when tenants want to, or need to move and find a new property to call home. Not having had a decent supply of properties for some months now it’s obvious that more people are vying over the same properties making for a competitive rental market. With that tight supply comes an increase in rents but more than that the overall stress and pressure to prospective tenants that have tight deadlines where they need to secure a property by a set date. This aspect of the rental market is obviously where tenants are hit hard and, in my opinion, it’s not anything that a Property Manager particularly enjoys. Having to decline other suitable applicants and disappoint them, is a pretty awful part of the job.

Cause & Effect

Our low vacancy rates obviously are the effects of low supply. Low supply has come about by multiple causes. One of these causes that we have seen first hand is landlords leaving the long term Rental Market, either reverting their properties to short term letting or leaving altogether to invest elsewhere. Despite some reports, I have seen and discussed with landlords their intentions to leave the rental market due to the numerous changes in legislation, changes that have occurred and have been proposed. Some landlords have experienced difficulties enacting and enforcing rights and responsibilities of parties which has become litigious and delayed via the available avenues such as NCAT’s bias approach. It can not be disputed that with each landlord that leaves the rental market, it is yet another household that is out there looking for a new home, further impacting levels of demand.

How is a Rent Increase Determined

There is a lot of talk generally among tenants about increases that are excessive but in recent history, I haven’t had any experience there. I think a rent increase can be seen to be reasonable if there are comparables that are real-world / realistically comparable. Factor in supply levels in the immediate area, and days on market and you can forecast the rental demand and a realistic “market” rent for a property.

In my experience, most investors don’t always go for the “market” rent, instead they are strategic in their decision making, proposing a slight increase in order to retain good tenants. The outcome is increasing the rent to a competitive rate but by a cooperative negotiation, reaching an agreement that both parties can live with. There is no formula or percentage-based rate used here, it’s a matter of judgment – where is the market right now and where are we in relation to it? As the managing agent, it is our role to make sure our clients are well informed and that we offer recommendations.

I tend to believe that rent increase recommendations which push tenants to move on and have clients incur re letting costs and vacancy by being overzealous aren’t always the right ones. These can not always be seen to be in the owners best interests but maybe that of the agent seeking to increase their income. It is important that the agents assessment is a calculated and realistic one, whilst it is the owner who will make the final decision, if the agent makes misrepresentations of the market it is the owner who will suffer the consequences.

Personally, I think an agent that is actively showing properties, negotiating new tenancies and dealing with rental enquiries has their finger on the pulse of the market at all times which we know is an ever-changing situation. As supply and demand changes, the agent that is on the front line is the first to know.

Lastly, not all Properties are created equally…

By this, I mean that regardless of there being a tight supply, there are still properties that will remain available for the taking. They might not be in the best location, they might need a little TLC or a priced and marketed so wrongly that prospective tenants steer clear. Whether it’s poor photos or undescriptive ad copy there are reasons why some properties remain available. Prospective tenants that are daring will go out and see these for themselves, there are some hidden gems around at times.

Share:


– Antonio

Director & Property Manager