Rent Increase

After last year's experience of having my rent raised on me by more than $100 per month for two years in a row, I decided to try mitigating the problem by only signing a 9-month lease. I wanted to move my lease renewal period from June to March/February, in order to hopefully lock in low rental rates during the winter. My hypothesis was that June is a bad time to sign a lease due to all of the college kids who just graduated and are starting new jobs at that point, thus creating increased demand for apartments. In my area there's also a large influx of summer-only interns that work for nearby tech companies. The traditional wisdom is that all of these hundreds of interns fill up all the available apartments and cause rents to be higher over the summer. I haven't seen any data that actually backs up this idea, but it seems plausible.

Today I got my lease renewal offer from my apartment manager and I was "pleased" to find out that my rent is only increasing $40 per month for this year, which is much less than in previous years and within the 2%-4% "move out threshold" that I established last year. I want to attribute this "success" to my plan described above, but in all reality it probably has much more to do with the plummeting housing market in Seattle than anything else.

As far as I can tell, there are two schools of thought about the relationship between apartment rents and housing prices:

• The "traditional" model says that rents and prices are tightly linked to each other, and the economy as a whole. If house prices go down, then rents should also go down because there's less money flowing around. Similarly they should both go up at the same time as well. This model seems to have matched the last few years, as both housing prices and apartment rents have climbed to ridiculously high levels.
• The "bubble" model suggests that when a housing bubble "pops", as seems to be happening right now, then rents should actually increase as housing prices decrease since all of the people who would have been buying houses are now forced into renting apartments due to the credit crunch, which increases renting costs everywhere due to increased competition. Similar logic would also seem to imply that rents should decrease or level off during a housing boom, since lots of renters are moving out and buying houses.

The fact that my rent is still going up even though local housing prices are declining seems to indicate that neither theory is totally correct (or as often seems to be the case, reality is just more complicated).

It may also be related to the fact that Microsoft keeps hiring 10,000 new people every year. Any theory is going to predict that local prices are going to be rising in that scenario...