Ask the Chief Economist: What is Rent Allowance?

Important takeaways

• Rental deals are often one-time incentives, such as three months of free parking, six weeks of free rent, or a waived security deposit.
• Covenants can be great for a renter’s budget by reducing short-term housing costs, but they can lead to surprisingly high costs when it comes time to renew.
• Landlords are more likely to offer concessions when rents are low or falling, or when demand is low, to attract tenants without lowering rents

Rents are starting to come down in some pockets across the country, which is good news for renters and a big difference in understanding caused by the pandemic. This is because some new apartments continue to beat the market, causing supply to exceed demand. Rents are falling the most in metros that are seeing big gains in supply.

But for homeowners, too many offers often result high vacancy rates. If this happens, they may issue rental permits to attract tenants and fill units quickly. That’s what’s happening now, and why more than one third of homeowners gave at least one permit in July. This concession is designed to make the lease more attractive without permanently lowering the monthly rent.

Employers may now find themselves in a position to negotiate, with opportunities to get a better deal if they do know what to look for. But knowing how to spot permissions — and when to take advantage of them — can be tricky. So what exactly is a lease agreement, and how can it benefit you as an employer?

We asked Redfin Chief Economist, Daryl Fairweatherto help answer common questions from employers. Let’s dive in, uncover the answers, and learn tips along the way.

What is a rental permit?

A rental concession (also called a rental concession) is a temporary discount or incentive that landlords can offer to make renting more attractive. “Permits are a way to sweeten the deal for tenants without reducing the rent,” Fairweather said. “It may include a free month of rent, a waived security fee, or waived fees such as application or parking fees.”

Landlords often use covenants to fill vacancies quickly or stay competitive in the market. While these one-time contributions can help lower the renter’s upfront costs, they usually don’t affect the monthly rent, so it’s important to review the terms carefully before signing the lease.

Rent concessions versus discounts

Rental deals and discounts both offer financial relief, but in different ways. Agreements are short-term benefits, such as a free month of rent or waived payments, without reducing the monthly rent. Discounts, however, reduce the monthly rent over the term of the lease, providing ongoing savings.

Types of rental permit

Rental agreements vary widely and can offer savings or added value to tenants. You may be granted one or more permits, depending on the landlord, residence, and any negotiations.

Common types of rental permit include:

• Rent free: A certain number of months offered free of charge, usually at the beginning of the lease.
• Reduced rent: A temporary reduction of the monthly rent for a certain period of time.
• Fees waived: Landlords may waive application fees, administration fees, or entry fees.
• Discounted security deposit: A lower security deposit than is usually required.
• Free services: Access to services such as parking, gym, or storage at no additional charge.
• Flexibility: Offers short or flexible lease terms without a regular payment.
• Improved unit features: Free or discounted unit upgrades, such as appliances or flooring.

How to apply for a rental permit

Requesting a rental permit includes research, to negotiateand documents. Here is the breakdown.

1. Research the market

If you’re a renter hunting for a new apartment, research is essential. Fairweather suggests, “shop around to find out what other places have to offer before representing a potential landlord to get approval.” This helps you understand the market and gives you a better position when negotiating.

2. Make a clear request

Prepare a clear application that explains the current market conditions and be specific about the approval you are seeking. Whether it’s reduced taxes or waived fees, having data to back up your claim is important.

3. Negotiate lease renewals

If you are looking to renew your lease with an additional lease, communication is important. Explain how the permit can help you stay longer, and provide market data if needed. Be open to negotiation and be flexible in other ways if your initial request is not possible.

4. Write the agreement

If you and your landlord reach an agreement, make sure the agreement appears in the lease or is added as an addendum. Review all terms carefully before signing, and plan for future expenses when the permit expires.

Consideration of rental permits for tenants

Rental agreements can make property more affordable at first, but tenants can see significant increases in housing costs once the benefits expire. So, it is important to plan ahead. Here are a few things to keep in mind.

Calculate the total number of concessions

To understand the total benefit of the contract, translate it into monthly costs and multiply it by the number of months you receive it. A $1,000 security deposit waiver is a $1,000 deposit, and a $60 three-month parking waiver costs $180.

Expect increased costs once the deal is over

This is important. “You could see a big increase in your total housing costs once the leases expire,” warns Fairweather. For example, if parking costs $60 a month, and you have free parking for three months, that’s a total of $180. After approval, you’ll need to start paying that $60 monthly, which increases your mortgage costs.

Look at the fine print

Be aware of clauses that may make the agreement less practical, and stick around for details. 1 month free parking compared to 12 months is a big difference, after all.

Prepare your budget

Make sure you’re not under budget or overspending. “You have to be prepared for the cost increase after the concession ends,” Fairweather continued. “A missed security deposit won’t matter during lease renewals, but waived utility bills can be a costly ongoing expense.” Adjust your budget to improve your finances during your lease, and know how much rent you can afford.

Why do property managers issue rental permits?

Property managers may grant rental permits for a variety of reasons. Most of the time, they are used to it to attract new employers in a competitive market with high vacancy rates. Landlords may also offer concessions to retain existing tenants, reduce utility costs, or respond to economic downturns.

Additionally, “Some areas limit rent increases (rent control),” Fairweather said. “But homeowners can still contribute to something effective rent increase by giving just a one-year concession, like free parking or a few months of free rent, while still raising the base rent.”

In this case, although all of the tenant’s payments during the lease remain the same, the legal rent listed in the lease will be higher. If the tenant then decides to renew their leasetheir monthly payments may increase significantly, unless they negotiate for other concessions.

Why are permits so common now?

New apartments gradually filling (absorption rate) than in the last two years due to the imbalance of supply and demand. Many landlords responded by giving permission to raise interest. This trend is mainly due to increase in construction that happened during the epidemic, which led to excess inventory today.

Therefore, as new apartments continue to enter the market and supply exceeds demand, rents have flattened or he started to fall in other places. “When rents fall or stay the same, deals become more common,” added Fairweather.

In Sun Belt cities like Tampa and Austin, supply far exceeds demandso a large percentage of landlords offer concessions. Nationwide, one-third of property managers have granted permits by mid-2024.

Agreements may also improve the long-term rental market by helping property managers attract new tenants during periods of low demand. “They’re a way to bring life back to their market, in a sense,” he notes.

How to get approval for online rental listings

Finding deals and deals in the online marketplace is easy. Most will indicate that the listing is a good value or offers incentives.

Opened Redfinfor example, any listing that offers incentives will have a “Deal” watermark on the image.

If you click on the list, you can find a detailed description of what they offer.

You can also filter to show a list with deals or promotions

When in doubt, call the property manager or landlord to find out what incentives they offer. Their phone number should be listed.