Renting is seen as an affordable alternative to owning a home. However, apartments have become increasingly expensive – especially in major cities and other high-demand areas.
Finding a suitable home can be a challenge, but what makes apartments so expensive in 2023?
Apartments are expensive because of rental market trends, supply and demand, land costs, and maintenance. Poorly implemented rent control regulations also allow landlords to increase apartment prices. The location and amenities also influence rental costs. Ultimately, payroll and taxes also have a role in apartment pricing.
1. No Rent Control
One of the main reasons apartments are so expensive is the lack of rent control laws.
Rent control refers to governmental programs that limit the amount a landlord can demand for leasing or renewing a home lease.
While these programs exist, very few states implement them. Some states allow municipalities to enact these laws, but the truth is that most cities don’t. Moreover, local laws forbid the enforcement of rent control in 31 states.
Separate, rent stabilization regulations set the maximum annual rent increase landowners can charge, but the actual prices are still dictated by the market. In most places, an imbalance in demand and supply makes apartments expensive.
2. Rental Market Trends
Market trends have dictated real estate prices for a long time, and things are no different when it comes to apartments.
According to specialists, higher demand for rental homes will see rent prices going up in 2022. This increment adds up to the already high prices, making apartments even more expensive.
3. Market Demands
Linked to the market trend is the market demand.
Most of today’s renters are millennials. This generation has higher demands when it comes to housing compared to their parents but a lower buying power.
These two factors combined force millennials into the rental market, but they still expect comfortable living standards – such as central air and private parking.
Landlords who choose to invest in these things charge more to lease their homes. At the same time, people who would normally buy homes are trapped in the rental market, lowering vacancies and driving prices even higher.
These demands not only affect apartment prices overall, but they can affect specific apartment types.
For instance, in cities like New York, 1-bedroom apartments are more expensive than 2-bedroom ones because tenants want to live independently rather than share a place with roommates.
Apartments can be more or less expensive, depending on location. For instance, a 3-bedroom apartment costs $1,284 on average (nationwide). However, 3-bedroom apartments cost about $2,430 in California.
The rental market in Florida has also seen a 29% increment in prices between March 2021 and March 2022.
However, apartment rent has gone down in other locations, including Massachusetts, New York, and Virginia.
5. Rent & Utility Bundles
Some landlords and property management companies choose to include utility costs in the rental price. These homes have more expensive rent, but you won’t have to worry about energy and water bills. Some places even include the cost of broadband internet and TV license.
However, opting for an all-bills-included apartment isn’t necessarily better or cheaper in the long run.
While it could seem that you’re getting a better deal, the landlord might be the one controlling the heating and cooling. You might be able to control the temperature inside the apartment, but not when the heat or aircon comes on throughout the year.
Most landlords and property management companies also calculate utility costs based on past years’ averages. However, prices can go down in time, meaning that you could end up saving by paying your own bills.
Another factor that determines apartment prices is the tax landlords pay on profits from rentals.
Across the USA, rental income is taxed as ordinary income. However, landlords can pay up to 37% in tax, depending on their overall income.
How much the homeowner pays eventually determines how high the rent will be.
7. Staff Payroll
Independent landlords that only rent one or two apartments generally charge less compared to property management companies or landlords who own whole condo buildings.
This is because companies have employees and must account for staff payroll when establishing their prices. Payroll typically costs 1.25 to 1.4 times the salary.
8. Land Costs
When renting an apartment in a condominium building, you must also account for the land costs.
The land apartment buildings are built on is generally owned by all apartment owners. Sometimes, the land is leased from the municipality for a number of years.
When it is leased, the lease cost is split between all apartments in the building. The maintenance of communal areas is also shared between apartment owners. This could increase rental prices in cities that tend to be expensive.
9. Construction Materials
Other building costs can also determine the rental price. High-quality construction and finishing materials are more expensive, drawing prices up.
When landlords pay more to buy a property, they tend to charge more to lease said property to recover their capital.
The amount of amenities an apartment provides also influences the costs.
Landlords can drive prices up based on both internal amenities and amenities existent in communal areas.
Some of the most desired amenities include a swimming pool, recreational areas, rooftop lounges, secured parking and building access, laundry facilities, and pet-friendly units.
One of the apartment living benefits is that you don’t have to worry about maintenance. Whether water pipes burst or you have a problem with the HVAC, the landlord is responsible for fixing everything.
What most tenants don’t know is that landlords and property management companies account for maintenance costs and make sure the rent is covering them.
More often than not, apartment owners tend to increase rent prices when a problem keeps coming up. For instance, if the apartment is in an older building with lots of plumbing issues, you’ll likely pay more in rent than you would for a new apartment in the same area.
Essentially, tenants are still the ones paying for maintenance costs, and these costs determine the overall apartment prices to be expensive.
Apartments are expensive because younger adults who decide to live independently have a lower buying power compared to the previous generations. This creates a higher demand in the home rental market, driving the prices up.
Factors such as land costs, building materials, location, amenities, and maintenance also influence the apartment price.