With inflation rates expected to fall back to 2% in two years (Forbes), in line with the Bank of England’s target rate, current inflation rates are affecting many areas of the property market. Away from house valuations, mortgage rates and the residential property market, property management is often an overlooked aspect of commercial property.
To explain further, Nino Chigoga, Content Writer for GoodJuju, shares her insight into how inflation affects property management opportunities.
Inflation is a scary word for many as it promises an economic crisis. Property managers are worried about the next part of their business as experts predict inflation. First, we must understand the roots of the financial crisis to understand how inflation affects property management opportunities.
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- Labour and Supplies
- Taxes & Insurance
- New Properties
- Fewer Homebuyers & More Renters
- Less Competition
- Renters Can Afford The Higher Prices
What Is Inflation
The decrease in the currency’s worth causes prices to rise in all markets. Inflation reflects the rising costs and the reduction of the currency’s value.
This situation applies to the property market as well. According to Nationwide’s house price index, if you bought a house in the North for £350,000 in Q1, 2000, then in Q1, 2022, it would be worth £1,058,371 — a rise of over 202%.
How Does It Affect Property Management Negatively?
There are more negative results of inflation than positive ones for property managers. If property management companies face the prediction of inflation rates increasing, they can be prepared for the worst.
Property managers need supplies to complete their tasks as property owners’ assistants. Cleaning supplies, inspection and maintenance tools, and office equipment are all necessities for these professionals.
Inflation will cause prices for all of these supplies to increase. Property management companies might have to make more significant expenses than in the past. In short, inflation will affect property managers’ budgets.
As for labour, property management companies often need to hire cleaning crews, construction workers, and interior designers. Due to inflation, vacancies have become more difficult to fill as fewer workers and the minimum wage is slowly increasing.
Due to inflation, property management companies will have to increase their budgets in terms of salaries and supplies.
Taxes are a headache for every business owner. Property management companies will have to face the rising cost of taxes over the next few months if inflation rates continue to increase. This is because rental property values rise with inflation rates, and taxes are directly connected to rental property worth changes.
Property managers and owners might have to increase the rent prices to afford to pay taxes, and it will make it more challenging to find suitable tenants.
Insurance costs, just like taxes, are related to property value. Therefore, with the increase in inflation and property values, insurance costs are also expected to rise.
Finding new properties will be incredibly difficult due to high prices during inflation. However, the price increase is one of many barriers for property investors. We can also see that the inventory has lowered in contrast to the demand.
Construction sites reflect the need for more employment in the property field as new builds have become rarer. Not to mention, homeowners fear putting their homes on the market, stressing the prices to increase even more.
These events have created a big issue for property managers and property investors since it’s become difficult for landlords to expand their businesses.
Does Inflation Have Any Beneficial Effects On Property Management Opportunities?
The short answer to this question is yes, as property managers could use inflation to better themselves in the long run. We can give a few examples of the positive effects of inflation on the property management industry:
Due to the increased housing prices, fewer people are currently trying to purchase homes; instead of rent properties. With inflation growing, mortgage rates are going to become higher as well.
Therefore, it’s no surprise that first-time buyers will push back their plan to purchase properties for the time being. High tax and mortgage rates, increased insurance prices, and high housing prices scare first-time buyers, which means that potential buyers have become potential tenants, and the demand for rental properties is going to rise.
This poses a beneficial opportunity for property owners and managers as they have more applicants to work with than in the past. Due to the currency’s value lowering, you can also charge a higher monthly rent.
The pandemic made renters back up, and many property owners stayed out of business for a while. Therefore, vacancy rates were lowered.
Property owners who maintained renting homes during these years have the upper hand as they have gained trust and experience. It’s less likely that more investors will join the market due to inflation, increased prices, taxes, and insurance costs. Therefore, property management companies might have fewer clients, but they will have a better chance of giving those clients high-quality services and finding suitable tenants.
Property owners can take advantage of less competition and fewer rental units appearing on the market and increase the value of their rental properties. They also have the privilege of being picky while choosing an applicant to enter their property.
You might be questioning how the renters could afford raised rent prices. There are few rental property options available. However, increasing rent without grounds because you have little competition is unethical. You can stay calm since usually when inflation occurs, salaries also increase.
Therefore, many potential tenants will likely find the increased prices reasonable.
Property management companies may encounter several issues during the inflationary period. However, investors have more opportunities than anyone else in the property industry during inflation. Therefore, property owners and their hired property managers will be able to find the brighter side of the economic crisis.
If you use your skills and knowledge wisely, you will find opportunities even in the most challenging times for your business. Therefore, the best thing for property owners to do is to find the most suitable and skilful property managers to help them get through the economic downturn.