Graham Stephan: Why Your Rent Is Getting Higher
Written by
Brooke Barley
Edited by
Levi Leidy
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If your rent went up in the past year, you’re not alone. On average, rents have been going up 5.45% over the past year. Some markets even saw rents go up as much as a whopping 63%. That was the case for Amagansett, New York. Other places like Oxford, Mississippi, saw a jump of 37%.
To try and answer the question why rent was going up so dramatically, CNBC dropped a video on their YouTube channel called “Are Landlords Colluding on Rent?” YouTuber Graham Stephan, known for his personal finance videos and real estate expertise, recently released a video in response titled “Why Your Rent Keeps Getting Higher (Landlords Getting Sued).” Stephan also explained what he thinks will keep rents from going up.
Supply and Demand Drive Up Prices
Stephan said a huge reason why rent is going up can be attributed to simply not enough supply for increasing demand. The demand over the past few years has never been seen before, so landlords, in turn, would increase prices knowing that people would pay more because there were fewer options available.
Stephan said the only answer to this is to build more housing. However, that’s quite an expensive endeavor. To recoup prices on building, rents would also go up. So, Stephan said the market is stuck in a place where rents are high because of low supply, and would be high for new construction as well. Stephan said there needs to be some sort of incentive for landlords to want to build that offsets the tremendous price it costs to do it on their own.
“What could we do to get more landlords here to build more?” Stephan asked in his video. “Because if we doubled the housing supply — I know, easier said than done — but if you double the housing supply, rents would fall almost immediately by 30% overnight.”
Landlords Are Trying To Make Up for Increasing Insurance Rates
Stephan also points out that home insurance rates have skyrocketed in states like Florida, Texas and California. Some of the reason why landlords are raising rent prices has to do with trying to make enough to money to pay these new insurance prices.
“Insurance rates are sometimes double what they used to be a year ago,” he said. “Where did that money come from? It eventually gets passed down to the tenants because the homeowners’ overhead costs are going up. It costs them more. They have to charge more just to break even.”
RealPage Rent Recommendations Drive Up Prices in Certain Areas
The lawsuits being served to some landlords have to do with the real estate software RealPage. The software analyzes nearby homes and gives a calculation for the optimal price for a unit and when to leave it empty. The software will advise landlords to leave the unit empty unless they can rent it for a specific price or higher. The CNBC video cited 90% of property owners using the software in a neighborhood in Washington, D.C., which as Stephan points out, can lean toward having a monopoly on the real estate market. This also might force renters to pay higher prices, since the software says it’s not advisable to go below a certain rent threshold.
In response, tenants are saying this technology is encouraging price fixing. The Washington, D.C., attorney general is suing RealPage and certain property companies affecting 14 landlords. Right now, these lawsuits are pending litigation. Depending on the outcome, this could dictate whether landlords are allowed to use pricing software like this, leading to potentially lower prices in the future. The attorney general said they’re seeking monetary damages and restitution for tenants who have been illegally required to pay inflated prices, rather than what a naturally competitive market would have set for them.
“It’s going to be tough because you could argue a naturally competitive market is using algorithms and using software and almost every big landlord has some sort of software that they’re using,” Stephan said in the video.
Either way, Stephan said it’s not an issue that’s likely to be resolved quickly.
“There’s so many nuances with this,” Stephan said in the video. “I don’t know if it’s ever going to fully get resolved, or if it does. I guarantee this thing is dragging on for five to eight years. There could just be a settlement where they don’t admit any wrongdoing and then just move on. This will be very interesting to see how this plays out.”
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