Rentals on the Rise: How to Calculate the Istat Rent Adjustment

In the face of rising interest rates, which discourage new mortgage loans for acquiring new homes, there is an increasing demand for rental apartments in our country. And this has an immediate impact on the pockets of Italians, who see rental prices continue to rise. Confirmation comes from the Locare research office, a proptech company active in the residential rental services sector, which has tracked the trend in rents in Italy’s five main regional capitals and the five major provincial capitals, trying to clarify the functioning of the Istat rent adjustment.

Trends in Rents in Italy in the First half of 2023

For those looking to rent a new home, the situation shows widespread increases throughout Italy, with a few exceptions.

Main Regional Capitals

Among the regional capitals, Palermo is the city that has recorded the most significant semi-annual increase: a value that has risen by 8.2%, given the rally in recent months. On an annual basis, in fact, the increase in the average rent is slightly lower, standing at 7.1%, with an average rent still below 100 euros per square meter (exactly 99 euros per square meter per year). This figure still differs significantly from other major cities.

At the top remains Milan. In the Lombard capital, the average cost of rent is 264 euros per square meter per year, with rental prices increasing by 5.2% compared to December 31, 2022, and by 10% year-on-year.

Positive values and performance, but lower, for Rome, Naples, and Turin. In Rome, in particular, by the end of June 2023, the average rent in the city reached 180 euros per square meter per year: 84 euros less per square meter compared to the city of the Madonnina, but with a positive semi-annual change of 2.9%, rising to 5.1% annually.

It is worth noting the case of Turin: while it is true that renting an apartment in the city of the Mole Antonelliana is significantly more affordable than in Milan and Rome, it must be said that Turin has managed to outperform Milan as the most dynamic market on an annual basis. With residential rental prices reaching 124 euros per square meter per year by the end of June 2023, the price increase was 4.6% in the last six months and even 10.4% compared to a year ago.

Close behind is Naples, where the average rent costs about 123 euros per square meter per year, with increases of 1.2% semi-annually and 2.5% annually.

Main Provincial Capitals

If we shift from regional capitals to provincial capitals, this is the ranking that emerges from Locare’s study:

• Parma: average cost of a rented apartment as of June 30, 2023, is 141 euros per square meter per year (+7.3% semi-annually and +9.6% annually);
• Padua: average rent of 140 euros per square meter per year (+1.7% semi-annually, +5.8% annually);
• Prato: average rent cost of 137 euros per square meter (+5% compared to six months ago and +7.9% compared to last year);
• Brescia: average rent of 123 euros per square meter per year (+6.1% since the beginning of 2023 and +7.5% compared to 12 months ago);
• Taranto: among those considered in the study, it is the only city where the average rent has dropped to 77 euros per square meter per year (-3.2% in the last six months, +2.3% over the year).

The Functioning of the Istat Rent Adjustment

Those who already have a lease contract may be asked by the apartment owner to pay a slightly higher rent than the previous year. When can this happen and how?

Preliminary Note: The index used to calculate the rental adjustments based on the lease contract between the tenant and the landlord is the Foi, which is the index of consumer prices for workers and employees’ families published by Istat. In June 2023, it remains unchanged at 118.6 points compared to the May figure of this year, but it has increased by 6% compared to the previous year.

“If expressly provided for by a specific clause inserted in the lease contract, specifying whether the adjustment is 100% of the annual variation in the Foi index for free-rent contracts or 75% for agreed-rent contracts, the rent adjustment to the Istat index must be made every year. Otherwise, the property owner cannot make any claims against the tenant,” responded the experts at Locare, reminding that rental rates subject to the flat-rate tax regime are exempt from the increase.

An Example

“For a residential lease contract with a duration of 4+4 and an annual amount of 12,000 euros (i.e., a thousand euros per month), with the Foi index on an annual basis in June equal to 6%, the annually adjusted rent for a free-rent contract will be 1,060 euros per month, and therefore, 12,720 euros per year. For an agreed-rent contract, it will be 1,045 euros per month (75% of the annual Foi adjustment), with a total annual rent of 12,540 euros,” conclude the experts at Locare.