Economists: Landlords Should Tread Carefully Raising Rents

September 28, 2018

Low rental vacancies nationwide, coupled with continued strong demand for single-family rental properties, could prompt landlords to increase rents even more. But housing analysts caution that further rent hikes could overburden tenants, many of whom already are struggling to stay afloat financially as housing costs rise.

Wooden no vacancy sign

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The nation’s largest landlords of single-family rentals, Invitation Homes and Tricon American Homes, say their occupancy rates have remained above 95 percent for the past three years. “Rent growth rates continue to be solid in most of the major markets across the country—in the middle to upper single digits,” Daren Blomquist, senior vice president at ATTOM Data Solutions, told the National Real Estate Investor. The firm’s data show that rents for three-bedroom units have climbed by 7 percent in markets such as Los Angeles and by 5 percent in Philadelphia in the 12 months that ended in the first quarter of 2018.

But landlords must not raise rents too quickly, housing analysts caution. Nearly 30 million U.S. renter households—or roughly half—already spend more than 30 percent of their income on rent, according to the Harvard Joint Center for Housing Studies. Most financial experts define that as “cost-burdened.”

With tight inventory putting upward pressure on home prices over the last few years, some economists have been calling on single-family landlords to cash out on their equity and put their properties on the market to feed lower price points starving for more listings. But many of these landlords say they have no intention of a sell-off anytime soon. Invitation Homes, for example, owns about 80,000 homes in 17 major markets, and company officials told CNBC that they see plenty of profit in the rental business. “U.S. housing is one of the most liquid classes in the world, and it’s a very easy thing for us on the margin to be buying and selling with our portfolio today,” Dallas Tanner, chief investment officer for Invitation Homes, told CNBC.

The single-family rental market is very healthy right now, says John Pawlowski, an analyst at Green Street Advisors. “The demand versus supply balance, and the operating outlook for revenue growth over these coming years, is more favorable versus most property types,” Pawlowski says.