What drives rental rates?

Question

David Faulkner · Answer

Supply and demand still drives market rents, even (and arguably especially) in rent controlled areas. What typically happens in rent controlled areas is those restrictions end up restricting the supply of available rental housing, which ironically drives market rents up even further ... not to imply that it is illegal, but it is kind of a kin to outlawing drugs doesn't stop drugs from being bought or sold, but it does drive the market value of those drugs up. Market supply and demand always drives pricing.

Account Closed · Answer

To piggyback off @Joseph M.'s comment, yes Rent Control affect rental prices by forcing prices to stay down which acts as an incentive for rent control tenants to stay in a rental for a longer period of time compared to the average renter who might eventually purchase a home. Some will argue that rent control restrictions reduce inventory on the market which then also restricts supply.

Another issue with Los Angeles is their extremely restrictive building regulations so when the city already has a supply shortage, LA is counter-productively discouraging additional apartment building by making it difficult to build and also very expensive to build. This is why most units that are being built in Los Angeles are luxury apartments, which also increases rent averages.

Patrick Walthall · Answer

@Joe Davis The market up here currently is pretty stagnate when it comes to rentals. There has been plethora of large student housing complexes built around and south of the university that has flooded the market. As the university expands and Rellis gets finished up the market will even back out; I foresee that being a few years out. Coming the next couple weeks I can foresee multiple property be put on the market due to vacancy.

Also with this petition. If passed could change a lot of things

Joe Davis · Answer

@Justin Fox College Station is a bit of a different ballgame in my opinion. I don't know any other towns that quite rely so heavily on the student population. Everything entailed in the conversation above (jobs) go hand in hand with the influx of students - which is never ending (albeit semi-seasonal).

In fact, the growth plans of A&M are ambitious, and I think it's going to be a very hot rental market. I read that it plans on being the largest school in the US. This will mean a regular abundance of readily made tenants (supported by mom & dad of course).

I think there is a lot of sustainability in the CS & Bryan markets and hopefully once I am further along in my Real Estate & Investor career, I will seriously look at buying Mult-family in the area to utilise as student accommodation.

Justin Fox · Answer

Economic opportunity.  Don't have a strong workforce in need of housing?  Then you don't have a housing market, much less a rental market.  At least not a very good one.  There should also be a distinction between different colleges.  The economic impact of College Station and its desirability is very much different than that of Lamar University.

Levi T. · Answer

Im my experience, demand is driven by one core factor, jobs. People go to college for jobs, people move to cities for jobs, and move out if jobs dry up. The more jobs, the higher wages, the higher the demand, because people want jobs.

There is also another side to the coin, you could see this in the housing collapse, once the market flushed out the owner who could not float a property in bad times, you seen the market hit a bottom as people just refused to sell or rent it for anything less, they would close the door and just keep it empty vs taking less. Banks and many others who could afford to do this, did that. Thus a floor in the market was born, even with the lack of demand you just where not going to get a lower price.

Rick Wang · Answer

Some people cant afford to buy homes so they rent, this adds more demand.

Brad E. · Answer

@Ryan Detig

Thanks!

What drives rental rates?

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