Inflation And It's Impact On The Rental Market
/Beginning in 2021 we have begun to see an increase in the cost of living in every area of the economy. There are many reasons for this including COVID inflicted supply chain issues, increased government spending, becoming a net importer vs exporter of crude oil, and government legislation, particularly in Oregon, that has had the net effect of decreasing the housing supply and increasing the cost of renting.
Most people living now, if they are under 60 years of age, do not remember or have personally experienced the inflation of the 1970s and early 80s. As of December 2021 we have a CPI (Consumer Price Index) of close to 7% and a PPI (Producer Price Index) of close to 10%. Since 1980 the powers-that-be have tweeked the CPI to leave out volatile categories like food and energy. The problem is food and energy are where much of the price increases are occurring. I have been told if you use the same CPI metrics that were being used in 1980 we are now in double digit inflation. Rumor has it that in January 2022 we will see up to 20% cost increase in food items. The problem with inflation is that wages are not keeping up with inflation and people will have to start making hard choices where to spend their money.
This now brings us to the rental market. We have been used to constantly increasing rents over the last several years and tenants have been able to pay them. In Oregon for 2022 the maximum rent increase will be capped at 9.9%. Because we have rent control in Oregon (for the record RENT CONTROL NEVER WORKS for anyone) owners and property managers are inclined to annually increase the rent to the maximum limit. For a house renting for $2000 per month that would be a monthly increase to $2198 and an annual increase of $2376. For an apartment renting for $1500 per month that would be a monthly increase to $1648.50 and total annual increase of $1782 to the current rent. If you are earning $20 per hour and your employer gives you a 10% increase to $22 per hour they have covered your rent increase.
The problem is everything else is going up in price—not just rent. How are you also going to afford food and gas and other necessities that are going up in price? What happens when tenants have to make hard choices to either pay rent or put food on the table? Are owners and property managers willing to take the chance to rent to tenants that potentially won’t be able to pay and then have to evict them? How long will tenants be living in the property, not paying rent, while the owner is waiting on their day in court which may be months down the road? Is the lost income and possible more extensive repairs worth the cost? In other words are owners and property managers ready for plateauing or even decreasing rent values based on the available qualified rental pool?
On a side note we have discovered many people do not understand the difference between gross and net income. Gross Income is what your employer pays you each month. Net Income is what is actually put in your bank account each month after taxes, insurance, 401 k contributions, and other deductions have been taken out. This is critical for tenants (and legislators) to understand in considering the affordability of a given property for potential tenants applying to rent. To not do this is potentially setting the future tenants up for failure.
The State of Oregon is not helping the problem with their eviction moratoriums and gross mismanagement of their rent reimbursement program. We have talked with lobbyists that work on behalf of the housing industry and have been told that our current legislators are not listening or willing to work on solutions that will benefit both tenants and owners.
All this being said we need to work together (owners, landlords, government and tenants) to find affordable and/or reasonable solutions to a potential upcoming housing crisis. Some questions to consider:
As an owner am I will to minimize rent increases if I have good tenants that are paying the rent and taking good care of the property?
Would we be willing to even temporarily lower rent for a tenant that has been faithfully paying rent and taking care of the property, but is currently going through difficult times?
Are we willing to take a little extra time to explain to tenants the difference between gross and net income to potential tenants and their ability to afford to rent a given property?
Are we willing to help educate legislators and work with them to come up with win-win solutions and if they won’t listen are we willing to work to elect legislators that will?
We are living in interesting times and will be seeing more challenges in the coming months and years. The question is are we willing to work together to meet these challenges or are we going to retreat into our individual camps and do battle to see who comes out on top. The much better path is for all of us to work and give and take together for mutually agreed positive outcomes. Can and will we do this? We will see.