Estate and mortgageWill Higher Utility Costs Increase Rents?
A California rental expert says tenants shouldn"t expect rent increases due to higher energy costs, despite a report to the contrary from the National Association of Realtors.
NAR said last week increasing utility rates, especially in areas such as California, will cause rent increases when leases are renewed. The findings were presented at a property management forum during NAR"s Midyear Legislative Meetings and Trade Expo in Washington, D.C.
As an example, Chuck Achilles, vice president of legislation and research services for NAR affiliate, Institute of Real Estate Management (IREM), said operators of small apartment buildings with 12-to-24 units, pay an estimated 5.8 to 6.3 percent of gross profits for utilities.
"What this means is that a 20 percent increase in utility rates will be passed along to tenants in the form of a 1-to-2 percent rent increase," he said.
Achilles went on to say many of the reasons for current energy problems will take years to correct and that could mean ongoing rent increases as energy costs continue to rise.
"In addition to the problems of deregulation in California, there has been no incentive to invest in utility lines, there"s been a lack of conservation efforts and we currently need 1,300 new power plants," he said.
Supply and demand, not energy costs, are much more relevant to rental costs, says Terry Feinberg, a rental property consultant and former executive director of San Jose, CA"s Tri-County Apartment Association.
Rising electric rates will have no effect on market rents in California. Rents are affected by the basic economic principles of supply and demand," he insisted.
To the contrary, as energy costs have soared in recent months, tenants in Silicon Valley and the San Francisco Bay area have experienced rent decreases due to technology industry lay offs, decreased hiring and reduced corporate travel -- all of which have contributed to reduced demand for rental housing.
"Corporate travel and training affects demand because of the large number of apartments leased by corporate housing companies for short term rentals. It is estimated that a couple of thousand such units have come onto the market since the first of the year," Feinberg said.
Feinberg said just as the over inflated owner-housing market has begun to lose air, high-priced rents forced many renters to switch their lifestyles to reduce housing costs.
"These changes include moving further away and combining households or taking on roommates to share the cost," Feinberg said.
Feinberg said a few smaller property owners who have managed to keep their rents below market levels may attempt to raise rents to offset higher utility costs, but market forces will remain a much greater factor.
"It is important to note that in most rentals, the residents pay utility charges directly, and thus the residents are already receiving an increase in the cost of their housing from the utility companies," Feinberg said.
To cut utility costs this spring and summer, tenants should use some of the same energy saving practices home owners employ.
Buy Energy Star products and use fluorescent lighting. Turn off unnecessary lights and appliances.
Keep windows shaded and closed during the heat of the day.
For cooling, set the thermostat at 78 degrees or higher and clean or change air conditioners" air filters regularly.
Instead of air conditioning, use small fans or ceiling fans when you are using only one room.
Run major appliances during cooler periods of the day. That saves money if you are billed a higher rate for peak period power use. Many appliances raise the heat and humidity which, in turn, makes your air conditioner work harder.
Limit the use of washing machines and dishwashers to only full loads to reduce how often you need to use them.
Prepare cool meals like salads and sandwiches that don"t require cooking.
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