Jan 27, 2025
Lori and her husband started renting out their “granny flat” to Lori’s sister, Jo, after she got a divorce and needed a place to stay. Jo is raising three kids and, at least initially, struggled to pay her bills, since her ex isn’t always forthcoming with child support payments — so Lori gave her a break on the rent, charging her 50% less than market value.
It’s been a few years now, and Lori and her husband just had a baby. They could really use some extra cash, but the rent they’re collecting from the granny flat is barely covering the increase in their mortgage, utilities and living costs. Plus, Jo has a new boyfriend who’s moved into the flat and works full-time.
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Lori wants to increase Jo’s rent, but doesn’t know how to broach the subject with her sister — after all, the cheap rent was just meant to help her get on her feet again. But Lori is wondering if she’s being selfish and if it’s wrong to ask her sister for more rent (or even legal).
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The rising cost of living
The rising cost of living in the U.S. can add fuel to household tensions. The average rent in the U.S. is $1,748 (as of November 2024), though this varies by city and region. And nearly half of renter households are “cost-burdened,” according to the United States Census Bureau.
Being cost-burdened means you’re spending more than 30% of your income on rent; in 2023, that was the case for more than 21 million renter households. That’s nearly half (49.7%) of renter households in the census data.
The good news is that rental markets are cooling.
“Rent growth has almost completely stopped, following historically high rent increases in both 2021 and 2022,” according to America’s Rental Housing 2024 report by the Joint Center for Housing Studies at Harvard University. Those historic highs were due to several factors, including inflation, low inventory and barriers to homeownership.
The bad news? “The extended period of rising rents during the pandemic propelled cost burdens to new heights,” says the report.
At the same time, rent prices have outpaced wage growth for the past two decades. Median rents have increased “nearly continuously since 2001 in inflation-adjusted terms and are 21% higher as of 2022.
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“Meanwhile, renters’ incomes have risen just 2% during the same period.”
To put that into perspective, the National Low Income Housing Coalition (NLIHC) comes out with an annual “housing wage,” which is an estimate of the hourly wage you’d need to afford rent without spending more than 30% of your income.
For 2024, the national housing wage is $32.11 per hour for a modest two-bedroom rental and $26.74 for a modest one-bedroom rental, according to Out of Reach 2024: The High Cost of Housing. Of 20 common occupations, 14 of those pay lower median wages than the one-bedroom housing wage, according to the NLIHC, accounting for more than 64 million workers.
Some relief could be on the horizon. Economists from Redfin — a real estate brokerage — predict that rental housing affordability will improve in 2025 because of a projected increase in supply.
Many construction projects put on hold during the height of the pandemic will come to fruition this year, increasing availability and helping to balance supply and demand. It also means renters could have more (and better) options to choose from.
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How to navigate this situation
In Lori’s situation, it would be preferable if she had a written lease agreement with her sister. For tenants with a long-term lease — say, one or two years — the state typically mandates when a landlord needs to provide written notice of a rent increase (typically between 30 to 90 days before the end of the lease). For month-to-month tenants, renewal happens monthly.
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States and municipalities may have rent control restrictions and tenant protection acts, so if Lori doesn’t have a written lease agreement with her sister, she can use state and municipal regulations as a guideline (which, for example, could restrict how often a landlord raises rent and by what percentage).
Of course, when it comes to family, there’s a lot of emotion involved — which wouldn’t necessarily be an issue if Lori was renting the granny flat to a complete stranger. On one hand, with Jo’s boyfriend moving in, the two have enough to pay fair market value for the granny flat.
On the other hand, Jo’s boyfriend shouldn’t really be part of the conversation, unless the lease agreement stipulates how many adults can live in the unit. A lease agreement can, in fact, set occupancy limits (often based on the size of the unit), so long as it complies with local regulations.
If the rent from the granny flat doesn’t cover Lori’s mortgage and taxes, then Lori is in effect subsidizing Jo’s rent, and they’ll need to have a conversation about how to cover those costs, especially if it’s hurting Lori financially. They could also come up with a deadline for a rent increase or discuss other options (say, Jo takes on additional household responsibilities).
If Lori doesn’t have a written lease agreement, she should create one. But it should be based on local regulations and fair market value — not because Jo’s boyfriend has moved in.
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Vawn Himmelsbach is a veteran journalist who covers tech, business, finance and travel. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, CBC News, Yahoo Finance, MSN, CAA Magazine, Travelweek, Explore Magazine and Consumer Reports.
