In a cost of living crisis, rent increases are a sensitive topic as landlords look to mitigate the impact of rising costs and market trends, and tenants look to avoid further increases due to stretched affordability. Finding a balance between fair and excessive rent increases can be challenging in a fluctuating housing market to ensure a satisfactory outcome for all.
We will be exploring market trends, factors to consider when increasing rent, and how to communicate and negotiate with tenants.
Considerations For Rent Increases
Understanding Market Trends
The state of the real estate market and economy directly affects the amount of rent that landlords can charge, so to make an informed decision, you must possess up-to-date information. Rental market data can take up to three months to be quantified, so relying on outdated information can lead to inaccurate assessments. Working directly with property managers can be a way for landlords to stay informed about the current state of the real estate market to determine whether a property is fairly priced or if it can be increased.
It’s easy for landlords to get greedy after hearing that they aren’t charging enough, however, it’s important to trust your agent and not outdated information from mainstream media. Many landlords hear old information in the news and trust it more than actual market conditions relayed by agents. In Sydney, rents have flattened for the first time since 2022 because of a reduction in tenant demand and a boost in rental supply, however, many landlords think that they should be increasing rental prices.
Rental prices in Woollahra, for example, have dropped by approximately $150 per week, and the suburb now has the highest vacancy rate for a suburb within a 10km radius of Sydney CBD, at 6.2 per cent. As vacancy rates of 2-3 per cent typically indicate a balanced supply of rentals and demand from tenants, this highlights a detachment from reality between landlords and property investors who are charging far more than tenants are willing to pay.
Tenant Negotiation
When negotiating a potential rent increase with tenants, it’s always important to be well-prepared. By providing tenants with a clear explanation of reasons for an increase – such as market data or information about recent property improvements – you are more likely to receive a more receptive response than if you are just increasing it for increased income. It is only natural to want to maximise possible returns, negotiating with a current tenant can be more cost-effective than insisting on a predetermined rent increase.
Losing a tenant and facing a vacancy period can have significant financial implications, including marketing costs and letting fees, which is why any increases must be weighed with vacancy costs. A good tenant is worth their weight in gold, and sometimes, it is better to choose a tenant that pays less but is dependable and treats your property as if it were their own. Open and honest communication is always the best approach, and offering your tenants options such as a gradual increase over several months or the possibility of negotiating a longer lease term in exchange for a lower rent increase are just two options that can be taken.
Avoiding Excessive Increases
As a landlord or property investor, rents that are below market price can impact the viability of your investment, so you must keep up-to-date However, excessive rent increases that are above market price can lead to tenant dissatisfaction, increased vacancy rates, and potential legal issues. If the price is unaffordable, you don’t want to force your tenants to move, particularly if they are dependable and always pay on time.
For landlords to successfully navigate rent increases, understanding market trends, communicating effectively with tenants, and considering factors can ensure tenant satisfaction and affordability for both parties. If you have any questions about navigating rent increases or want personalised advice, feel free to reach out to me directly. I’m Ben O’Brien, Head of Residential Management at Rose & Jones. You can contact me on 0457 433 510 or email me to discuss how we can manage your rental property effectively.
About Rose & Jones
Rose & Jones has been helping clients find and purchase properties in Sydney, South East Queensland, and the Northern Rivers since 1998. A renowned property buyers agency across residential, commercial and industrial sectors, every one of our property experts meets our high standards, so you won’t have to compromise yours. With access to a wide network of off-market properties, our team can help you find the perfect property. Also offering property management services and investment advice, make Rose & Jones your go-to when it comes to real estate in New South Wales and Queensland.
