What is inflation, and how does it affect rental prices in the rental market?
We must understand inflation trends and how they relate to the rental industry.
Inflation is the increase in prices of goods and services that affects the purchasing power of our money.
From 2021 to 2022 alone, the inflation rate increased by about 7%, according to the US Labor Department.
What causes inflation? One of the leading causes of inflation is the demand-pull effect, where the total demand for goods and services increases to exceed the supply of goods and services. Another cause of inflation is the cost-push effect, where the supply of goods and services produced decreases. The other factors that affect inflation that we need to pay attention to are; exports, the exchange rate in the market, and tax policies.
How does inflation affect the rental industry? During the inflation period, the rental price increases. Though inflation may help increase the rental fee in favor of the property owner, it will also be offset by many factors, such as; the increased maintenance cost, mortgage rates, property taxes, broker fees, interest rates, insurance rates, and renovation or maintenance fees.
How does inflation affect the renters? With the prices of goods and services constantly increasing, it's only time for rent prices to go up, involving the tenants. For tenants to keep up with the inflation, workers' salaries must increase too. Still, a survey has shown that only a third of working Americans report their income has kept up during the inflation period.
In conclusion, learning the market trends is beneficial in the rental industry. Knowing what inflation rate and the current flow of the economy will give us an insight into when is the perfect time to invest or make the most of our investment.