Tess Vigeland: It is not so hard to remember the days when landlords couldn’t give apartments away — ’cause everyone wanted a house, right? Well, fast forward three, four years and this month, the UCLA Anderson Forecast said Southern Californians are more likely to pick apartments in urban areas over McMansions in the suburbs — and that’s pushing rental prices up. Same’s happening from New York to Charleston to Houston.
Marketplace’s Jennifer Collins reports it’s a landlord’s game now.
Jennifer Collins: Craig Gaines and Erica Wrightson are your typical renters. He’s 32, she’s 26. They’re shopping for their first place together in Los Angeles. Today, they’re looking at a “cozy” 800-square-foot bungalow.
Craig Gaines: We thought the rooms were maybe just a tiny bit small.
And apparently the previous tenants had a thing for sponge paint.
Gaines: If we’re going to be paying $1,850, which is what it is listed at. We wanted the inside to be just a little, a little bit nicer.
Rental agent Ellie Balderrama says last year this place would have gone for $1,700 a month. But since the spring…
Ellie Balderrama: It’s been madness. Prices have gone up and they’re renting faster.
During the recession, apartment construction slowed to a crawl. That’s limited the supply of new units just as more people are looking. Some are relocating to take new jobs. Others — who lost or sold their homes — have decided to rent.
When Balderrama shows up at a weekend open house in LA’s trendy Silver Lake neighborhood, a crowd is already waiting.
Balderrama: Hi guys!
Balderrama: Come on up!
She opens the gate to a two-bedroom cottage listed at $2,600 a month.
Balderrama: It’s just now 12:30 and I’ve already had five parties come through.
Many have applications in hand. By 12:45, prospective tenants start adding sweeteners to their applications: Three months rent up front, bigger deposits.
Prospective tenant: Obviously, there are tons of people checking this place out.
Balderrama: Yes. So if you wanted to offer whatever your terms are to make yourself more desirable that’s up to you. You put it on the application. I present that to the owner and then from there we proceed.
Wait a minute. Landlords want renters to be more desirable now? Douglas Pope of the housing site Hotpads.com says that’s a huge shift for tenants who’ve gotten used to being in the power position.
Douglas Pope: You didn’t even actually have to ask for deals. When you signed the lease, they automatically gave you the first two months rent-free and maybe they threw in a TV.
Rental units on Hotpads have shot up almost 7 percent in the last year. Pope says that’s partly because new renters are moving in and the older ones aren’t moving on.
Fifty-five-year-old Greg Richardson and his wife sold a four bedroom house two years ago. While they were looking for their next place, they took a two-bedroom apartment.
Greg Richardson: This is essentially the second bedroom, which is set up as an office, except the dresser only fits in here.
The apartment maybe a little cramped, but the rent is half of what they paid on a mortgage. Richardson is using the savings to start a consulting business. And they plan to keep renting.
Richardson: I think it’s a challenge because you feel like you’re going backwards in some ways. But if you just look at the nuts and bolts of the situation, it made a lot of sense for us.
Collins: The nuts and bolts being the fact that your expenses are like half.
Richardson: Yes. Big nuts and bolts like that.
Those nuts and bolts have many house-hunters asking the big “rent or buy” question again. Bob Bridges teaches real estate finance at the University of Southern California.
Bob Bridges: It isn’t really a question of whether should you rent or buy. The question is should you buy or should you take the equivalent amount of money and invest in something else?
Bridges’ research shows if you invest wisely — and that’s the key word — you can make out better as a renter. Craig Gaines, the guy apartment hunting with his girlfriend, is glad he doesn’t have to make that decision.
Gaines: I’m in no huge rush to buy a house.
And with most of the country in his camp, open houses for rentals will probably get much more crowded.
I’m Jennifer Collins for Marketplace Money.
Vigeland: And for another take on the rental market, on our Makin’ Money blog, we look at the surge in low-income families who pay 50 percent or more of their income on rent and utilities.
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