25 Aug Rent Increase Update from Tom Potter

Homes are in shortage right now, both for sale and for lease. For the last couple of years, we’ve seen a lot of otherwise well-qualified buyers lose out on homes they were trying to purchase because of the sheer volume of buyers they were competing against. The result was often homes selling for well over the asking price due to bidding wars with buyers waiving any and all contingencies. In the end, all these buyers still have to live somewhere, and so they in turn become well-qualified tenants. But there still aren’t enough homes to satisfy all of those people along with the regular number of people looking to lease a home with no intention or ability to buy one.

So we have seen the prices of homes for sale steadily increase due to demand (and not enough supply), and homes for lease have largely paralleled that trend. The market value of rental properties throughout most of St. Louis has increased at least 20% in the last year or so. Landlords are faced with the difficult decision at lease renewal to impose such significant increases on their current tenants versus what has been considered a typical increase of around 3-5% at annual renewal. We are seeing a lot of our clients trying to meet their tenants in the middle of the new market rent and what the tenant has been paying in an effort to recognize good tenants and hopefully retain them. But some of those tenants cannot afford even a 10% increase. Those homes are then listed at the higher market rent and promptly leased to new tenants.

The cost of living continues to climb with no end in sight. The only thing that can slow this pace would be a massive new inventory of homes, and I’m not sure that can happen quickly enough to offset the demand. For the foreseeable future, a lot of tenants are going to be paying higher and higher rents and a lot of would-be buyers are going to be forced to compete for those same rental properties. It’s a difficult time to be a tenant or buyer, and a really lucrative time to be a landlord or seller.

Tom Potter
Property Mgr./Broker Associate/REALTOR®
314.920.0781
tom@hermannlondon.com