Inflation is the rate at which the cost of goods and services increases over a year. This rate—swayed by increased money supplies, interest rates, rising wages, spending fluctuations, and tax deductions—reduces a dollar’s purchasing power. And the lower a dollar’s purchasing power becomes, the higher the costs of goods and services will be.
Inflation rates have peaked in recent years as the U.S. economy has struggled to stabilize after the pandemic. Consumers throughout the country have felt the strain of rising prices and tighter budgets. But what impact does inflation have on the rental market?
The cost of most goods and services is affected by inflation, and real estate is no exception. Inflation causes the cost of labor and supplies to rise, making it more expensive to build new housing. Interest and mortgage rates may also climb, increasing the cost of borrowing money for housing investments. As a result, real estate investors are more hesitant to expand their portfolios during peak inflation. Other landlord expenses that increase due to inflation include these:
- Maintenance—painting, repairs, cleaning, and lawn care.
- Renovations—new roofs, flooring, or appliances.
- Property taxes.
- Insurance premiums.
- Marketing costs.
But despite these higher costs, inflation doesn’t necessarily mean bad news for landlords. No matter how quickly the prices of goods and services escalate, everyone needs a roof over his head. Inflation makes homeownership comparatively more expensive, so potential homeowners may decide to rent instead. This increasing demand for rental units makes it easier to fill vacancies. In addition, property owners with a fixed mortgage rate will find the equity in their property rising while the payments to their lenders stay the same. Most importantly, landlords can offset mounting expenses with reasonable rent increases. Just make sure those rent hikes comply with lease terms and that you communicate applicable laws in a way that doesn’t scare away quality tenants.
The fallout from inflation can be intimidating for any business owner. But with cautious spending, market research, and sound retention strategies, landlords can weather the economic storm—and possibly increase revenue in the process.
About Rentals America
Rentals America provides full-service property management for residential rental properties. Our team is completely dedicated to property management, and we’re here to help landlords navigate the rental market.
