Study: Housing Providers’ Rent Increases Often Don’t Match Market

Policy Study: Housing Providers’ Rent Increases Often Don’t Match Market Roger Valdez Contributor Opinions expressed by Forbes Contributors are their own. Roger Valdez is Director of the Center for Housing Economics. New! Follow this author to improve your content experience.

Got it! Aug 5, 2022, 09:30am EDT | Share to Facebook Share to Twitter Share to Linkedin The greedy landlord is hardwired into our culture. (Philip Cokorinos as Benoit, left and Stephen . .

. [+] Costello as Rodolfo in La Boheme at the Dorothy Chandler Pavilion on May 9, 2012. Photo by Lawrence K.

Ho/Los Angeles Times via Getty Images) Los Angeles Times via Getty Images Perhaps one of the most iconic portrayals of a greedy landlord is Benoit from Puccini’s La Boehme. The character arrives on the scene at the opening of the play looking to collect rent and then proudly confesses infidelity to the poor artists he’s trying to shake down. They pretend to be outraged by his immorality, eject him, and use the rent money for a night on the town.

The image of the poor but righteous tenants is so compelling a modern musical adaptation of the opera is called Rent. But are housing providers really trying to squeeze every last cent from their residents? A study from Berkeley indicates that often, housing providers leave money on the table, giving discounts and often failing to keep up with the market. The study, Affordable Housing Without Public Subsidies: Rent-Setting Practices in Small Rental Properties , takes a look at how housing providers set their rents and how those rents relate to larger market trends.

The hypothesis of the research is that many smaller property owners are providing rental housing at prices significantly lower than the rest of the market. The researcher surveyed 53,000 property owners nationwide in 149 metropolitan areas. The operators surveyed own between 1 and 4 units of rental housing.

The survey found that “nearly half of small rental owners choose to set rents below market. These discounts are substantial, averaging 16% below market. ” Before I get to the conclusions and suggestions from the researcher, let’s look closer at why this particular group of housing providers have lower rents.

The study found that “some of these small rental properties are low-cost because they are low quality or are in low-demand neighborhoods. ” This makes sense, especially if you think of any other product, service, or thing of value in a city. Parking, for example, will be cheaper outside of downtown than it will be right near an event venue like a stadium.

This is simple supply and demand. But more importantly, the study found and confirmed something anyone in or near the rental. Housing business that an “owner’s rent-setting strategies are diverse,” and “there is evidence that some owners’ lack of knowledge of market conditions contributes to discounts, as does owners’ impression of their tenant’s income.

” Smaller operators can often be relying on gut instinct rather than data, although in my experience, even smaller housing providers are often very savvy about what the rest of the housing market it doing. But that last point is absolutely critical, so important I’ll quote it again: What matters often is the “owners’ impression of their tenant’s income. ” Price reflects what happens in a market where a property owner and customer negotiate and size each other up in one way or another.

Residents look at a building, its location, its amenities, and even the interaction with the property owner and make a decision about whether the asking price for rent is “worth” what their getting. In a functioning market, housing providers are allowed to do the same, checking credit, income, and tenancy history. MORE FOR YOU Biden’s Proposed IRS Bank Account Snooping Authority Runs Into State Resistance 2021 Diversity Green Card Lottery Winners To Be Shut Out Because Of Visa Deadline The Swamp Grew – Even Under President Donald Trump The study found that, “Many owners mentioned trying to keep rents below to limit vacancy losses and attract and retain “good tenants.

” Owners also noted that setting rents low when bringing a unit to the market can shorten the period a unit is vacant and result in more applications for the unit. ” However, this reality is rejected by people that argue that housing is a human right and shouldn’t be a commodity ; they believe that all housing should be owned and operated by the government . Far from being a negotiation, these advocates argue that the very existence of a market in housing is racist, and that negotiation is a way of discriminating against people of color who, they suggest, housing providers don’t want to live in their housing .

Housing providers shouldn’t have a choice in who lives in their properties, how long they live there, or even what they should pay. But in the survey, the researcher found that housing providers “rarely mentioned criteria that are illegal to consider,” but instead want to build relationship to ensure a lengthy tenancy. Evictions, non-payment, vacancies, and empty units are expensive.

The study found that housing providers do their best to keep rents competitive to avoid turnover and financial burdens on residents that could result in eviction or the resident having to move. Taken together, the results point to a bustling economy in housing that provides significant savings to customers and, often, good, long-term tenancies from customers. Here is the key paragraph, “Most municipalities likely have large stocks of good quality below-market rental housing in small rental properties.

Supporting below-market small rentals could be a means for municipalities to realize their housing affordability goals. However, the right policies to support this part of the stock are unclear and likely vary by jurisdiction. Planners could examine the owners and tenants of small rentals in their area to understand their needs and respond accordingly.

” It is important to note that often, smaller housing providers subsidize their tenants with deferred maintenance. Cheaper housing often is cheap because things like landscaping, painting, or repairs aren’t tended to. The money saved ends up being passed on as savings to residents.

This sets up a no-win scenario for housing providers who can end up being called “slumlords” for holding back on more aesthetic fixes or letting other things run down in the building. When a big repair is needed, the owner sometimes has to sell and the new owner has to make the repairs and upgrades; those are always paid for with higher rents. Targeted, low-interest loans for many of these items could help avoid name calling and forced sales.

What those property owners do not need is regulation that limits credit checks, forces renting to the first person who shows up, forces them to take vouchers, and bans eviction endlessly and for questionable reasons. All of these things increase risk, and increased risk means higher prices to offset those risks – if housing providers are allowed to raise rents. Rent control further would put much of the housing stock that is the subject of the study at risk.

Finally, it is important to note that all rental housing in the country is subject to human behavior in a market. Certainly, larger operators have more scale to absorb risk and because they have investors, often have a set and automatic schedule for rent increases. But even the largest apartment company is subject to supply and demand; if demand falls, it doesn’t matter how much they want to charge or who they wish their customers might be, their prices and requirements to rent will change.

More housing production means that everyone who needs housing benefits from lower entry requirements and lower costs. While this study is well done methodologically it is also pragmatic. Rather than find ways to force actors in the market to do certain things or seek outputs regardless of inputs like risk and costs, local governments need to find ways to incentivize keeping lower prices, like low interest loans for larger maintenance needs, tax deferments and exemptions, and most of all issuing lots and lots of permits of all kinds of housing of all kinds everywhere.

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