The energy crisis and higher utility rates may be forcing landlords to reevaluate and, in some cases, increase rents.

As utility rates escalate over the next few years, the increased cost will be passed on to tenants across the country, an industry expert said.

“Somewhere down the line there’s going to be increases [in utility rates], and the property owner can’t eat all of that increase,” said Chuck Achilles, vice president of legislation and research services for the Institute of Real Estate Management, an affiliate of the National Association of Realtors.

Rate increases vary from state to state but in some places, like California, utility rates have jumped dramatically.

Achilles said owners of small apartment buildings with 12 to 24 units typically pay 5 to 6 percent of gross profits for utilities. That doesn’t include tenants who pay for their own utilities and landlords who build utility costs into rental prices.

“A 20 percent increase in utility rates could mean a 1 to 2 percent rent increase,” he said.

Housing advocates in the Bay State are concerned about how higher electricity bills could affect tenants already scrambling to find affordable apartments in this high-demand real estate market.

“It’s unclear what the impact has been so far,” said Aaron Gornstein, executive director of the Citizens Housing and Planning Association.

“We’re very concerned that lower- and moderate-income families will be affected, as well as property owners, by higher utility costs,” he said.

For Boston-area tenants who pay utility bills in addition to pricey rents, the heftier prices could spell disaster, say affordable housing advocates.

“Many tenants pay their own utilities, and that [higher rates] becomes a major concern,” said Steve Meacham, housing organizer for City Life/Vida Urbana, a Jamaica Plain grassroots group that helps organize tenants.

The higher rates may encourage landlords to transfer utility costs to tenants who currently are not responsible for paying them.

“If the rates increase, it will probably become more of an incentive for property owners to … transfer utilities to tenants’ names,” he said.

The higher rates are also a problem for tenants living in run-down and poorly insulated buildings, particularly if the residents pay their own heating bills, Meacham said.

Norma Rosario, a City Life/Vida Urbana program coordinator, said many Boston-area tenants are already forced to choose between paying utility bills or rent.

More and more tenants have seen their heating bills escalate this year and need help paying them. Higher rates will only exacerbate the problem, Rosario said.

“Most of them can’t afford to live in the apartments they have,” she said.

Gradual Rise
Apartment owners, however, say higher electricity bills won’t necessarily lead to an increase in rents.

“Just because there is an increase in utility rates doesn’t mean you can pass on that cost to tenants,” said Thomas Beaton, vice president of property management for The Dolben Co. in Burlington, which manages 9,500 residential units in New England, the Mid-Atlantic and Michigan.

Beaton, who is president of the Rental Housing Association of the Greater Boston Real Estate Board, said there’s no question that substantial increases in electricity, gas and oil costs have negatively affected cash flow for property owners.

However, most property owners set rents according to what the market will bear, and utility costs are only a portion of the total operating costs of a property, he said.

Jeffrey Libert, chief financial officer of Forest Properties Management in Newton, echoed Beaton’s remarks.

“I don’t think it [higher rates] affects rents. It may affect profits,” said Libert.

Rental rates have more to do with demand than with operating costs, he said.

The demand in some areas may be softening a bit as younger adults, who don’t have the job security they once had and are a little more cautious in the Bay State market, opt to share or “double-up” on apartments, he said.

But Libert emphasizes that while rents aren’t likely to decline, “There won’t be a sharp increase in rents.”

Rents in the Back Bay, Becaon Hill, Fenway and North End neighborhoods of Boston are likely to remain strong, while in Allston and Brighton rents will stay flat, Libert said.

Meanwhile, owners of smaller properties are less likely to raise rents for tenants who have lived in their apartments for a while, said Lenore Monello Schloming, president of the Cambridge-based Small Property Owners Association.

“I’m very hesitant to raise rents on a sitting tenant,” said Schloming, owner of a 10-unit building in Cambridge and two six-family homes in nearby Somerville.

Schloming said tenants pay the heating bills in all of the apartments she rents except for two.

Most smaller landlords probably don’t figure utility cost into rent rates, she said. Instead, landlords concentrate on property taxes, insurance costs and water and sewer rates – which are typically much higher in some areas – when they figure out how much rent to charge.

“I don’t think small property owners consciously say, ‘Aha, energy rates are going up, so I’m going to raise my rents,'” said Schloming.

Even if some landlords do decide to raise rents, they would have to wait until leases are up for renewal, meaning that there won’t be a sudden increase of rents in Greater Boston and Cambridge areas.

“If the landlord pays the utilities, I presume the rents would gradually rise,” Schloming said.

IREM’s Achilles said increasing utility rates are the result of several problems that have been in the making for years.

New electricity-generation plants are not being produced and, since the deregulation of the industry in 1994, there have been few incentives for public utility companies to invest in fixing and upgrading wiring and transmission lines.

Also, many of the energy conservation incentives that existed before have disappeared, he said.

Since industry deregulation went into effect in some states, public utility companies have been forced to sell their generation plants and are leasing back the power. When those leases are up and the terms change, utility companies will likely charge higher rates to make up for the changes.

In Massachusetts, the state Department of Telecommunication and Energy deregulated electricity in 1997 to encourage competition. The DTE set rates with the utility provider. But the below market-rate generation cost is expected to increase 51 percent within a three-year period. The increased generation cost will likely mean higher electric bills for consumers.