Rent is Rising in Central Florida. Here’s What it Means for the Real Estate Market

It goes without saying that the last year has seen historical increases in house values. The mainstream conversation has mainly centered on property values for sale purposes. The little attention that the increase of rental rates has received has a disturbing tone and bias: Rents are going up at historical rates because landlords only care about their bottom line.

It is impossible to analyze one segment of the economy without taking into account the cause and effect of changes in other sectors. Inflation has made property ownership more expensive to investors. Rising home prices have increased the mortgage payments on investment properties. Lastly, increased immigration and overall population growth has led to a rise in demand for rental units.

The Effects of Inflation on Investment Properties

Inflation is impacting almost every sector of our economy. One of the main reasons many tenants decide to rent vs own is to avoid the expenses of owning a property such as:

• Insurance: “In 2019, the average homeowners insurance premium was $1,989 in the US, according to the Insurance Information Institute. The average cost of premiums in Florida in 2022 is $3,585, approximately a 55% rate hike in the last three years, according to Insurify.” CITE Not only is it more expensive to insure properties, but the companies have strengthened their guidelines, making it harder to obtain coverage. Properties that were able to get insured 12 months ago, are no longer being insured unless the property owner agrees to repairs.
• Property Maintenance & Repairs: The supply chain disruptions caused by the many months of lockdown has made repairs more expensive. A roof replacement that would have cost you $7,000 a few years ago will now cost $10,000 or more!
• Taxes: The way that the system is set up in its most simplistic explanation is that you’re charged “$1 in taxes for every $1,000 in home value.” CITE This means that as home values have been skyrocketing so have the tax bills that landlords have to pay!

The Effects of Increases in Property Values

The last 24 months have seen appreciation rates as high as 32% year-over-year in many markets. This has led to increased mortgage payments for new investors, many times much higher than the current rents in the area. For example, I recently purchased a duplex in Fort Lauderdale, and due to increased property values my mortgage payment is $3,600. The tenants that the previous owners had in place were paying a combined total of $2,375. That is a gap of $1,225!

Population Growth = Greater Demand

Central Florida is currently welcoming roughly 1,000 new permanent residents every week. This large number of immigration has put a strain on our current infrastructure. The development of new communities has not been able to keep up with the rising demand for rentals. In simple economic terms, as demand increases so will the prices. The upward trend in prices should continue until inventory catches up.

To Conclude

As a son of an immigrant single mother, I know it can seem catastrophic to be a tenant in these highly volatile economic times. “Orlando’s 23.2% year-over-year rent growth in May 2022 joined Miami and Tampa as being the only three markets with rent growth of more than 20%.” CITE This spike in rental values is leading many to argue that a housing emergency should be declared to set a rent cap or stricter regulations to protect tenants. “Other Florida counties already have done that. For example, Miami-Dade County passed a measure in March that requires landlords to give tenants at least 60 days’ notice before rent is increased by more than 5%.” CITE

In an Orange County sanctioned report conducted by GAI Consultants Inc. they concluded that “most [issues] stem from inadequate housing production over years which a temporary rent ceiling would do little to correct,” the report stated. “If implemented, as generally described in Section 125.0103, rent stabilization measure(s) may impede the objective of speeding overall housing deliveries as well as create a number of unintended consequences.” CITE Some of these unintended consequences, I argue, will be a reduction in investors purchasing investment properties.

What Does This Mean for Tenants?

Rents are only expected to continue to increase. The cost of renting continues to, in many areas, surpass the cost of owning. At Armas we pride ourselves in helping our customers make the right decision for their circumstances. Our complimentary consultations with any of our expert buyer agents will help you create a plan of action.

What Does This Mean for Investors?

Florida continues to be a landlord friendly state with immigration and tourism continuing to increase, and it is a great time to own investment properties. In most markets throughout Central Florida, homes are renting within a week of entering the market. This paired with friendly state regulations continue to make real estate an extremely worthwhile investment.

Raidel Armas