Tenants in rent-controlled dwellings are paying more, CPI statistics show
Despite indicators to the contrary, according to the Consumer Price Index (CPI) rents have not been dropping, they have been rising — until this year.
Although the CPI shows that rents have risen every year, since 2006, the spread has continued to tighten as the statistics below demonstrate:
l 3.9 percent in 2006
l 2.6 percent in 2007
l 2.4 percent in 2008
l 1.9 percent in 2009
l 1.3 percent in 2010
l 1.1 percent in 2011
l 0.2 percent in 2012
CPI statistics giving the consolidated figure for the first months of this year show that rents have been down for the first time since 2006, which was the earliest date
The Royal Gazette was able to obtain.
Rents, which are the most heavily weighted sector of the CPI accounting for 32.5 percent of the index, this year have fallen every month except for February, when it rose 0.1 percent. In January rents fell by 0.1 percent, in March by 0.5 percent and in April 0.3 percent.
Opposing the CPI figures, real time, current information from realtors in the field show that to the contrary, free market rents have levelled off, or even increased in 2013.
The lag reflecting the free market’s downward pressure on rents until the end of 2012 appears to have been caused by the opposing pressures brought by increases in rents for properties under rent control — and this month, despite the overall fall, this category of rental units again saw a CPI increase — this time of 0.1 percent.
And even though realtors in the field are seeing an improvement in the market, the numbers show free market properties declined by 0.9 percent.
Until this year, realtors working with free market properties had been reporting large rent decreases. It was a year ago when they reported that during the past five years rents had dropped by 25 percent or more on average, but people at the lower end of the rental market have been paying more because owners of rent-controlled properties were allowed by the Rent Commission to raise rents.
Then Shadow Finance Minister ET (Bob) Richards had said the discrepancy needed to be looked at along with the effects of rent control.
Mr Richards, who had raised the issue in the House before, said then it is a consistent pattern where rent-controlled homes show a higher rate of inflation than free market properties. “This is a continuation of a trend where market-driven rents have fallen with the recession while rents under rent control have continued to go up. So I would say rent control is not serving the purpose it was meant to serve in the first place.”
While increases had probably been allowed in many cases because the owners have upgraded the properties, he expressed scepticism that it could be the full story. “It just seems incredible the same thing has happened year after year,” he said. “It’s not fair and it needs to be stopped.”
There had been no response to questions about the impact of rent control by press time yesterday.
Susan Thompson, agency manager for Coldwell Banker Bermuda Realty, said: “Although the Bermuda Consumer Index statistics are useful from a historical perspective as it relates to the real estate industry, one must take into consideration the source, timing and sample size of the data utilised for the analysis.
“As Bermuda’s largest real estate agency we benefit from real time data and our three residential rental agents confirm that we have experienced some recent changes in the rental market from a demand perspective.
“Currently our market intelligence indicates a robust market where rental prices have levelled off in certain market segments and in some recent cases we are seeing multiple offers on correctly priced properties.
“March, April and May have seen a substantial increase in number of units rented and an increase in properties renting above $3,500. Both April and May rentals have shown a dramatic increase in average rental prices over the past year with May’s average of just over $5,200 which is perhaps suggesting an increase in external demand for the mid to higher tier rental properties.
“Interestingly at present we have an insufficient supply of large four bedroom homes, hence are finding it challenging to satisfy the demand for our executive tenants looking for homes in sought after areas.”