Conventional wisdom (and the U.S. Census Bureau) advises people to spend no more than 30 percent of their income on rent. While it's a good rule of thumb, housing costs continue to rise year over year making it difficult to abide by this.
You may be wondering why rent prices differ across the country or even between different neighborhoods. Several factors can influence fluctuations, so let's talk a look at some of the main reasons why rent prices are different.
A basic principle of economics, the theory of supply and demand can help explain why rent prices are different in each city or region of the country. At its most simple, supply and demand is defined as “the amount of goods and services that are available for people to buy compared to the amount of goods and services that people want to buy."
When more people want to rent an apartment but there are not enough apartment complexes to keep up with the high demand and high occupancy rates, then apartment prices will increase. Likewise, when there are more apartments available than there are renters, rent prices will decrease. Supply and demand fluctuates by city, county, state and region, which helps explain why the cost of rent in some cities is higher or lower compared to other cities.
Joe Roberts, a moving and relocation specialist at Move.org, explains that vacant units costs property owners money and are often determined by supply and demand:
“If an area is oversaturated with empty apartments, you can bet that they will all be going for bargain rates. On the other hand, if an area doesn't have enough apartments to accommodate everyone that needs a place to live in that area, demand will be high and rates will skyrocket. Depending on seasonality and the economy, supply and demand can change at the drop of a hat."
The Consumer Price Index calculates inflation, the upward change in prices for consumer goods and services. These two factors affect the cost of items across the country, including rent prices. As market prices increase due to inflation, so will your cost of rent and cost of living.
Different cities have different increases in the CPI. A recent article in the LA Times details how market prices are drastically increasing in California metro areas, making the cost of rent incredibly costly. Rent will vary by region as the cost of living increases in different cities at different rates according to market changes.
Apartment complexes are required to pay fees and taxes to the municipality or local government in which it's located. These rates vary by location and by municipal area.
The apartment manager or property owner will often weave these fees into the cost of rent, but if the municipal rates change or increase, so will the price of rate.
Cities and regions with larger population densities are likely going to have higher rent prices compared to regions with less dense populations. Again, this is tied to the idea of supply and demand. As population increases and large metro areas become more desirable, more people are in need of an apartment.
Trends come and go just like rent prices increase and decrease. It's important to realize the relationship between apartment trends and prices and migration patterns because it does influence the cost of rent and is part of the reason why rent fluctuates by region.
It may sound cliche, but location does matter when it comes to the cost of rent. Some places are more desirable than others, and property managers can capitalize on the desirability of an area.
According to Bruce Ailion, a realtor located in Atlanta, describes how location can play a big role in rental pricing:
“New York City, Chicago, Los Angeles and Miami Beach are very desirable locations. Even people who do not live and work in those cities can bid prices up such that local workers have difficulty affording the rent. There are other places, Detroit, Memphis, Columbus, where people have left and there is a chronic over supply. Prices decline and the relationship between wages and rent makes it a very attractive economic proposition."
Location within a city will also influence the price of rent. For instance, apartment complexes that are near the city center and in a walkable area are likely going to cost more than apartment complexes in the suburbs.
Apartments that are closer to public parks, trails, schools, restaurants and shopping areas will likely have a higher rent than apartments that are located near shooting ranges, hospitals, cemeteries, freeway entrances or homeless shelters.
Feeling safe in your own space is a top priority for most renters. The history of safety in your apartment complex and the city or region it's located in has an influence on the price of rent. Typically, if the region's track record for safety is good, rent prices will be more expensive. The safety scores can vary region by region, affecting the price of rent.
“Irrespective of location and city, the safest areas that are lowest in crime per area are generally the most attractive to prospective renters, and hence come at the highest cost. Even in higher-cost cities like New York City or Boston, you'll find the most expensive options in areas with the lowest rates of crime per capita," said Beverly Friedmann of Reviewingthis.com.
There are multiple reasons why rent prices are different across the country and within cities. Factors like supply and demand, physical location and amenities offered can influence the cost of rent.
By understanding what influences rent prices, renters can make more informed decisions about when and where they rent.