Cities such as Phoenix, Tampa and Boise are seeing huge increases, forcing tenants to decide about their budgets and what matters.
Rising inflation is hitting the wallets of many Americans. The cost of rent is where some are feeling it most.
Over the past year, the median cost of rent has risen by nearly 20% in a handful of areas including Phoenix, Tampa, Fla., and Boise, Idaho, according to analysis conducted by the Urban Institute. The average rent for a one-bedroom apartment in Sarasota, Fla., for example, was recently at $2,004 a month—a 40% increase compared with the previous year, according to rental listing site Zumper.
Managing Your Finances to Pay Rising Rents
Many factors are driving the rent surge including a short supply of housing inventory. There is a deluge of renters who huddled with family members early on in the pandemic but are now driving demand for dwellings. Landlords, meanwhile, are looking to recoup some losses from the pandemic, when some gave discounted rents to new tenants and existing ones missed payments. Those priced out of the hot housing market are pushing into rentals.
For Americans, rising rent comes on the heels of several other issues that are pressuring wallets. During the current period of inflation—when higher prices for goods and services begins to sap the purchasing power of the dollar—consumer budgets are besieged by the prospect of higher heating bills, home-insurance premiums and an auto market in which the cost of a used car can outstrip that of a brand-new one.
Some renters are coping by putting less into savings or making more-drastic life changes such as moving to a more-stable rental market.
“Even before the pandemic, rental prices were pretty high up there,” said Jung Choi, senior research associate with the Housing Finance Policy Center at the Urban Institute. “The pandemic has just made things worse.”
Here’s what financial planners, economists and housing professionals say renters should be thinking about now.
How much should I be spending on rent?
The classic personal finance rule is to keep housing costs at around a third of your monthly take-home pay. That rule might be less relevant, or simply impossible, for those facing higher costs in metropolitan areas or rising rent markets, said Kristen Euretig, certified financial planner and founder of Brooklyn Plans.
Ms. Euretig recommends thinking of rent as part of your fixed cost bundle. If you are paying more on rent but less on other fixed costs, such as utility bills or car insurance, then you can budget for higher rent. The important thing is to keep your fixed-cost expenses at half of your take-home pay, she said.
“Once it gets past 50%, you start to see sometimes that people just don’t have enough left over for going out to eat and traveling, and that can lead to credit-card debt,” she said.
Cynthia Meyer, financial planner and founder of Real Life Planning, recommends paging through listings on Zillow or Trulia or checking resources such as Rentometer.com to check median rent in your area. This way, you can gauge whether you are paying too much for the size and location of your place.
She also recommends having a leaner financial plan prepared so that you can pivot quickly if catastrophe strikes.
“So you got one budget when things are good, but then maybe have a budget that’s 25% less,” she said.
Should I go into debt or get a personal loan to pay rent?
Falling behind on rent payments is risky. Taking on debt to keep from falling behind can increase the risk by adding debt payments down the line.
Before going that route, Ms. Meyer recommends talking to your landlord about possible options. Discuss a rent modification, which allows a tenant to pay a reduced amount in rent in exchange for making a written plan on how payments will be made up, or ask about slowly integrating the rent increase over a few months.
“If you have someone who always pays on time and says, ‘I don’t know if I can do this rent increase,’ or, ‘Could we do this in stages?’ that is valuable to the landlord,” she said. “Vacancies cost money.”
For those in dire need, Ms. Meyer also recommends that tenants ask their landlords about applying for rental assistance. The availability varies across the country, so Ms. Meyer recommends working with your landlord directly to ask about the process.
My lease renewal is coming up, but I can’t afford the increase in rent. What should I do?
Negotiating rent might sound intimidating, but doing so could save you money.
First, consider your relationship with your landlord. Talking to an individual property owner will be different from talking to a large management company, but you can prepare for both conversations by making a list of the qualities you bring to the table, such as making consistent payments.
The important thing is to convey your concern about the rise in rent, she said.
“I’ve seen successful negotiations, and I’ve seen people ask and just get a flat ‘no,’ but what do you have to lose by asking, right?” she said.
Should I try to move to a cheaper place?
First, survey the landscape of available properties out there and ask: How much do I save by switching apartments? Second, consider the costs of moving, from breaking a lease to hiring movers. There are other upfront expenses, too, such as paying to set up new utilities.
“It’s going to cost more to move, even if it’s just across the street,” said Brian Carberry, senior managing editor of Rent.com.
If you are struggling to add up the costs all to save $100 a month on a new apartment, trimming other parts of your budget might be your best option.
Should I consider a new city?
Big cities are often more expensive. They are also often more predictable in terms of rental prices. For renters, it’s about judging what is more important to you.
Britton Hennessy is a 29-year-old user-experience designer in Boise. After paying $1,000 a month for a two-bedroom, one-bathroom, 850-square-feet apartment, his landlord raised the rent last summer to $1,150.
The increase pushed Mr. Hennessy and his wife, Sara Meyer, 31, to prolong their plans to buy a home in the area. They are eyeing cities such as San Diego and Seattle, where they have friends and family and where the market is slightly more expensive but more stable.
They are giving themselves until March, and then making a decision.
“We’re privileged and lucky to be where we are. It just means we can’t afford a new car or put as much into our savings,” said Mr. Hennessy. “Boise is a weird place right now.”