Why could rental costs for apartments/houses rise while buying prices can go up and down?
I am from Australia, so my answer is based on my experience over here, however it should be similar for the USA. Generally, what determines both the price of houses/apartments and the rents for them is supply and demand. When there is high demand and low supply prices (or rents) generally go up. When there is low demand and high supply prices (or rents) usually go down. What can sometimes happen when house prices go down, is that the demand can drop but so can supply. As the prices drop, developers will make less money on building new houses, so stop building new houses. Other developers can go bankrupt. As less people (including investors) are buying houses, and more people (including investors) try to sell their existing houses, there will be more people looking to rent and less rental properties available to rent. This produces a perfect storm of high demand and low supply of rental properties, causing rents to rise strongly. When the property prices start to go up again as demand increases, there is a shortfall of new properties being built (due to the developers not building during the downturn). At this time developers start to build again but there is a lag time before the new houses can be completed. This lack of supply puts more pressure on both house prices and rents to go up further. Until equilibrium between supply and demand is realised or an oversupply of rental properties exists in the market, rents will continue to rise. At 5%, this means you expect rents to double every 14 years. I bought a condo style apartment 28 years ago, (sold a while back, by the way) and recently saw the going rate for rents has moved up from $525 to $750, after all this time. The rent hasn't increased four fold.  If rents appear to be too low compared to the cost of buying the house, people tend to prefer to rent. On the flip side, if the rent can cover a mortgage and then some, there's strong motivation to buy, if not by the renters, then by investors who seek a high return from renting those houses, thereby pushing the price up.  The price to rent ratio isn't fixed, it depends in part on interest rates, consumer sentiment, and banks willingness to lend. Similar to stock's P/E, there can be quite a range, but too far in either direction is a sign a correction is due. "Average rent rates will typically rise and fall, and are market-dependent just like real estate. In the short term, a collapse in housing like the one we saw in 2008 can induce a spike in rental costs as people walk away or get foreclosed on, and move back into apartments. That then tends to self-adjust, as the people who had been in the apartments find a deal on a foreclosed house and move out. However, one thing I've seen to be near-constant in the apartment business is that a landlord will offer you a deal to get in, then increase the rent on you from year to year until you get fed up and move. This is a big reason I didn't have the same address for two years in a row until I bought my house. The landlord is basically betting that you won't want to deal with the hassle of moving, and so will pay the higher rent rate, even if, when you do the math, it makes more sense to move even to maintain the same rent rate. Eventually though, you do get fed up, look around, find the next good deal, and move, ""resetting"" your rent rate. I have never, not once in my life, seen or heard of any landlord offering a drop in rent as a ""loyalty"" move to keep you from going somewhere else. It's considered part of the game; retailers will price match, but most service providers (landlords, but also utility providers) expect a large amount of ""churn"" in their customer base as people shop around. It averages out." They are two different animals. When you rent you are purchasing a service.  The landlord, as your service provider, has to make a profit, pay employees to do maintenance, and buy materials. The price of these things will increase with inflation, and that rolls into your rent price. Taxes also are passed to the tenant, and those tend to only go upward. Market forces of supply/demand will drive fluctuation of prices as well, as other posts have described. When you buy, you are purchasing just the asset - the home. This price will also be driven by supply/demand in the market, but don't try to compare it to buying a service. Cheers! Economically, you would say that purchased and rented real estate are not perfect substitutes--they are largely separate markets.  Only a few people are able to easily switch from one to the other and that choice is sticky--for example, once you buy a house, prices would have to rise a lot for it to be worth it to sell it and move into an apartment. In both markets there is a supply and demand curve, but the slope of the demand curve for houses to purchase is much steeper than the demand curve for rentals. The market for new housing fluctuates rapidly because it requires a large change in housing prices to change the number of people looking to buy a house.  Most decisions to buy a house are not driven by the state of the housing market.  This describes a supply/demand graph with a very steep demand curve.  Additionally, because of the leverage provided by mortgages, the demand for houses depends critically on relatively small changes in the interest rate and availability of loans.  Thus the steep demand curve shifts all over the place as borrowing conditions change. On the other hand, apartment prices are more stable because people easily move from one apartment to another and people living in their parent's basements easily move into apartments if prices change.  A small change in the price or quantity of rentals brings about reasonable response in quantity demanded.  This is the situation where the demand curve is shallow.  In addition, rentals are not tied to interest rates tightly, nor are they as strongly tied to economic conditions (in a recession, people avoid buying but renters continue to rent).
If money is more expensive (costs more to borrow) then fewer people will be able to qualify to make the payments for a particular size of mortgage.  This reduces the number of potential buyers for property at that price.  As sellers still want to sell, they will move their prices down to where more people can afford to buy. So rising interest rates create downward pressure on housing prices. But Toronto is the biggest city in Canada.  I'd expect part of the high prices there is the location: lots of people want to be close to lots of activities, action, and opportunity.  Unless something catastrophic happens, I don't see Toronto losing that advantage.  If anything, it's going to get a tad warmer up there in the coming decades. "This is the best tl;dr I could make, [original](https://qz.com/1029925/if-youre-renting-a-city-apartment-without-a-car-16-of-your-rent-pays-for-parking-you-dont-need/) reduced by 76%. (I'm a bot) ***** &gt; Since the 1940s, many US cities introduced minimum parking rules: for every new unit of housing, developers must also build a certain number of parking spaces.  &gt; Parking should be thought of as an equity issue, argues researchers Gregory Pierce and C.J. Gabbe in the journal Housing Policy Debate, Why? The average price of building a garage parking space is passed on to people whether they own a car or not, and distort the true demand for urban parking.  &gt; &amp;quot;The lack of rental housing without bundled parking imposes a steep cost on carless renters-commonly the lowest income households-who may be paying for parking that they do not need or want,&amp;quot; write the authors.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6o5ro3/if_youre_renting_a_city_apartment_without_a_car/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~170156 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **Parking**^#1 **housing**^#2 **price**^#3 **car**^#4 **new**^#5" If there are a lot of houses for sale, can you be sure that in a year or two you can sell yours? How long does the average house in that area stay on the market before it is sold? What percentage of houses never get sold?  If it can't be sold due to the crowded market you will be forced to rent the house. The question for you then is how much rental income can you get? Compare the rental income to your monthly cost of owning, and managing the house.  One benefit to buying a house in a market that is easy to rent a house would be if you are forced to move quickly, then you aren't stuck being 3 months into a 12 month lease.  Keep in mind that markets can change rather dramatically in just a few years. Housing costs were flat for much of the 90's, then rocketed up in the first half of the last decade, and after a big drop, they are one a slow climb back up. But the actual path they are on depends on the part of the US you are in.  The rule of thumb in the past was based on the fact that over a few years the price would rise enough overcome the closing costs on the two transactions. Unfortunately the slow growth in the 90's meant that many had to bring checks to closing because the equity gained wasn't enough to overcome the closing costs due to low down payment loans.   The fast growth period meant that people got into exotic loans to maximize the potential income when prices were going up 10-20% a year.  When prices dropped some found that they bought houses they couldn't afford, but couldn't sell to break even on the transaction. They were stuck and had to default on the mortgage.  In fact I have never seen a time frame when the rule of thumb ever applied. "We considered similar big renovations when putting our house on the market. The answer turns out to be pretty simple; unless you do renovation-type work as your day job, or have really good friends in the residential contracting business, sell as-is. You will virtually never get back the full price of bringing in a gen-con to renovate any space in your home; you do that when you want to spend the extra to make your home exactly what you wanted, so you can live in it for decades and get the enjoyment out of it. If you're trying to turn a profit with the renovation, like house-flippers do professionally, you look for easy repairs/renos, buy good-looking but inexpensive materials, and do the labor yourself. Whether you sell to the market or to a specifically-interested buyer is your call, but I will caution you that a specifically-interested buyer is going to be looking for a deal, or a steal.  When marketing our house, we met with three different realtors. The first one was very overoptimistic about what we could list for (basically assuming that we could get the same price as a fully-upgraded version of our same floor plan with a pool out back). She also had a to-do list a mile long, and my wife and I both noticed that she looked very apprehensive about the house when looking around, even as she reassured us that selling it would be no trouble. We eventually realized why she was so apprehensive, and fired her before we got even halfway through her to-dos, which included major landscaping, new kitchen floors and countertops, etc, which would have cost us thousands and would not have gotten the house price even close to the target. The second one took a look at our half-finished refinish and told us to stop everything we were doing to update the minor stuff like paint and fixtures, saying we were putting lipstick on a pig; she would market the house to some cash buyers she knew personally, for about 80% of the list price our first realtor quoted, and implied that we should be kissing her boots for finding us a buyer willing to take the house off our hands at all. During the tour, she pointed out ""problems"" with the house that weren't even there, like foundation issues such as sloping floors, in an attempt to scare us into going with her strategy. We sniffed that out pretty quickly, showed her the door at the end of the initial consult and never called back. This, by the way, is the kind of thing you want to avoid; unless your home is really dilapidated or torn apart with unfinished major renos, it should have decent value on the market and you shouldn't have to resort to a cash buyer looking for a flip or a rental property on the cheap. Just like Goldilocks, our third choice was just right. He saw all the same comparables, toured our house, and recommended that we offer about $20k less than the fully-upgraded version (but still about $20k more than the second realtor was estimating), targeting a ""real"" buyer and not an investor or flipper, but at a price that would make the lack of upgrades more acceptable. We finished the paint and finish projects we started, brought in a weekend's worth of scheduled showings, and our house was under contract for full price within 3 days, giving us the extra $20k worth of down payment to put into our new house. In summary, I highly recommend a realtor, because the one we eventually listed with worked his butt off on the business side while we fixed up the house. However, make sure you find the right one; realtors are ultimately in business for themselves, and their ultimate interest is in getting your house sold and getting you into a new one. That is what gets them paid. Some of them will do it the right way, working the deal with other realtors and their prospective buyers to get you what you need. Others will take the easy way out, at your expense, either giving you bad advice about how to present and price your home so that you end up on the market for 6 months with no offers, or handing your house to their business buddies at a discount." If you buy, you also have to consider what others can afford to pay. If people are not going to pay more than 50k, why buying overpriced crap for 400k, which is going to be cheap in 5 years. Just rent out and wait for a deal or cheaper rent near-by. Your reasoning is backwards. As others have pointed out, you cannot just decide how much you charge irrespective of the market. Let me paraphrase a little economics 101 to underline why you also should not think like this: You can see a rental property like your house (the same reasoning is usually explained with the example of hotel rooms) as a series of perishable goods. Your house represents the potential sale of the January rent (which perishes once January is over), plus the February rent etc. Your approach was to compute the total costs (all fixed and variable costs of owning that house as well as costs associated to renting specifically) and average them over the time period so that you know how much to ask at least. Assuming that you are only looking to rent it out, not sell it or let a family member live there, you can't think like this. Most of those costs that you averaged are what economists call sunk costs. You have already incurred the mortgage costs and they are not affected by your decision to rent or not to rent. These costs are irrelevant to your decision making process. You only need to think about marginal costs: those additional costs that you have when you rent but not when you don't. Look at the market prices for renting similar properties in that region and compare them with your marginal costs. As long as they are higher than your marginal costs, rent it out. This does not mean that you are sure to make profits, but it means that you are sure to make less losses than in your only alternative of not renting. The largest problem and source of anxiety / ruin for homeowners during the housing market collapse was caused by the inability to refinance. Many people had bought homes which they were stretched to afford, by using variable-rate mortgages.  These would typically offer a very attractive initial rate, with an annual cap on the potential increase of rate.  Many of these people intended to refinance their variable-rate to a fixed rate once terms were more favorable.  If their house won't appraise for the value needed to obtain a new loan, they are stuck in their current contract with potentially unfavorable rates in the later years (9.9% above prime was not unheard of.) Also, many people, especially those in areas of high inflation in the housing market, used a financial device known as a Balloon Mortgage, which essentially forced you to get a new loan after some number of years (2, 5, 10) when the entire note became due.  Some of those loans offered payments less than Principal + Interest! So, say you move near Los Angeles and can't afford the $1.2M for the 3-bedroom ranch in which you wish to live.  You might work out a deal with your mortgage broker/banker in which you agree contractually to only pay $500/month, with a balloon payment of $1.4M due in 5 years, which seemed like a good deal since you (and everyone else,) actually expect the house to be 'worth' $1.5M in 5 years. This type of thing was done all the time back in the day.  Now, imagine the housing bubble bursts and your $1.2M home is suddenly only valued at, perhaps, $750k.  You still owe $1.4M sometime in the next several years (maybe very soon, depending on timing,) and can only get approved financing for the current $750k value -- so you're basically anticipating becoming homeless and bankrupt within the same year. That is a source of much anxiety about being upside-down on a loan. See this question for an unfortunate example. "Leverage means you can make more investments with the same amount of money.  In the case of rental properties, it means you can own more properties and generate more rents.  You exchange a higher cost of doing business (higher interest fees) and a higher risk of total failure, for a larger number of rents and thus higher potential earnings. As with any investment advice, whenever someone tells you ""Do X and you are guaranteed to make more money"", unless you are a printer of money that is not entirely true. In this case, taking more leverage exposes you to more risk, while giving you more potential gain.  That risk is not only on the selling front; in fact, for most small property owners, the risk is primarily that you will have periods of time of higher expense or lower income.  These can come in several ways: If you weather these and similar problems, then you will stand to make more money using higher leverage, assuming you make more money from each property than your additional interest costs.  As long as you're making any money on your properties this is likely (as interest rates are very low right now), but making any money at all (above and beyond the sale value) may be challenging early on.   These sorts of risks are magnified for your first few years, until you've built up a significant reserve to keep your business afloat in downturns.  And of course, any money in a reserve is money you're not leveraging for new property acquisition - the very same trade-off.  And while you may be able to sell one or more properties if you did end up in a temporarily bad situation, you also may run into 2008 again and be unable to do so."