Understanding The Recent Trend In Anti-Landlord Legislation Across The U.S.

MISPLACED BLAME OFTEN LEADS TO PREDICTABLY INEFFECTIVE SOLUTIONS

Let’s start a conversation about a debatable issue with a hard fact: The average rent in the U.S. has increased 18% over the last five years. Americans who are unable or opt not to buy a home are being asked to pay more and more for a quality place to live and this is compounded by the fact that more and more Americans fall under this category than ever before. With increasing numbers comes bargaining power and more political influence, which is the way a democracy is supposed to work. But it also requires that parties do their due diligence in fully understanding the complexity of a given issue: so let’s dive in.

LEARN MORE: THE TENANT POOL HAS NEVER BEEN DEEPER OR STRONGER THAN IT IS NOW

THE ARGUMENT FOR ANTI-LANDLORD/PRO-TENANT CHANGES

At face value, there is an obvious problem. More and more landlords are setting higher rent prices which means more and more people are unable to afford them and/or are spending too much of their income on rent, placing more stress on renters’ other financial responsibilities. This is a legitimate argument and because there are so many more potential tenants today than in years past, it’s even harder for those lower income families to find a quality place to live because of the increased competition. So if the rental market is operating at a clip that makes it inaccessible to a large number of people, perhaps government intervention is necessary.

And so we’re seeing more and more state level bills proposing solutions such as rent control, increasing the amount of notice needed to raise rents, just cause evictions, pest control becoming 100% landlord accountable, first right of purchase refusal for non-profits, and beyond. The goal is to use the power of government to make the game more fair for a growing group of people. We’re seeing this play out across the country as roughly 46 million Americans are renters…that’s about ⅓ of the population. Needless to say, pro-tenant legislation on the part of renters is not going anywhere and will continue to spread.

THE MAJOR POINTS THIS ARGUMENT MISSES

Again, there’s no denying that it’s extremely difficult for potential renters right now…especially when compared to past years. But what’s missing from the proposed legislative solutions is an answer to the question, “why?”. Why are rents so much higher than they were pre-pandemic? Why are landlords increasing their rents more quickly? What other factors might be making it more difficult for renters to find an affordable place to live? ALL OF THESE LEGISLATIVE “SOLUTIONS” IGNORE THESE IMPORTANT QUESTIONS AND WILL BACKFIRE BY STYMYING FUTURE GROWTH and further decreasing rental housing supply.

1. WHY ARE RENTS SO MUCH HIGHER NOW?

The place to begin whenever talking about market prices is supply and demand. If prices are up, you can safely assume supply is down, and that is indeed the primary cause of inflated rental prices. How do we know this is true? Because it’s also the reason for inflated purchase prices. So the follow up question is what are state and local lawmakers doing to help increase the supply of rental units? Are local incentives making it easier and quicker to build?

LEARN MORE: IS IT A HOUSING CRISIS? … OR A DEMAND CRISIS???

The other piece, which is the most frustrating for landlords, is that so much of the recent pro-tenant legislation has made it more expensive to own a rental property. For example, the state of Rhode Island, where Nexus Property Management’s headquarters is located, is proposing much harsher financial penalties to enforce higher levels of lead safety. These types of anti-landlord bills are going to add costs for local landlords, who in turn will be forced to increase rent to cover their already slim margins, and thus the supply of affordable homes will decrease further.

LEARN MORE: AT THE END OF THE DAY, TENANTS ARE THE ONES LEFT HOLDING THE BAG

2. WHY ARE LANDLORDS RAISING THEIR RENTS MORE QUICKLY?

As noted above, expenses continue to rise for property owners as well. With the decreased supply, the value of homes has increased. That’s great if you’re looking to sell, but most landlords are not selling and they’re not pulling equity with these current interest rates, so what does that increase in value mean for them? It means higher insurance costs and higher taxes. Markets are made up of many wheels with many spokes and all of those moving pieces are a part of their own business with the need to make ends meet. Pest control and plumbing costs much more than it did prior to the pandemic…so the landlord is in a position where providing the value the tenant signed up for, is more expensive as well. As a basic business tenet, when expenses increase you either need to decrease your expense or you need to create more revenue…so here we are. If rents are capped, what do you think that is inevitable about landlords’ ability to respond appropriately to tenants’ service requests?

3. OTHER FACTORS MAKING IT MORE DIFFICULT FOR RENTERS TO FIND AN AFFORDABLE PLACE TO LIVE?

One word: Inflation

Like the pest control company and plumber referenced before, everything costs more than it did a year ago, and a year before that, and on and on. Being reminded of that reality should make the fact that housing is less affordable far from surprising. If a potential renter wants to spend 30% of their income on housing but their remaining 70% isn’t getting them what it once did, the magnitude of the housing problem is magnified.

Two words: Sales Market

High interest rates were supposed to bring elevated real estate sales prices down. They didn’t…or at least haven’t yet. So we have high interest rates along with high sales prices so more and more people are opting to rent rather than buy given the current circumstances. That means everyone is getting pushed down a rung. The person who wants to buy is renting at $3,000/mo. The person who could afford $3,000/mo. Can’t find something at that quality and is settling for something at $2,000/mo. The person who’d be renting for 2K 5 years ago, is stuck with the lowest quality housing out there…and everybody else is on the sidelines.

Three words: Build More Homes

LEARN MORE: HOW ELEVATED PROPERTY SALES PRICES ARE AFFECTING RENTAL AFFORDABILITY FOR TENANTS

THE NEED FOR A VILLAIN

The goal here is to paint a picture of a tricky situation with lots of nuance that ultimately hinges on the lack of housing supply. Unfortunately, that story doesn’t get clicks or shares or likes or (what do you call a retweet if it’s X now?) so we instead get fed a story about greedy landlords because people love a villain. But rental property owners are not lining their pockets in this current market. Apart from the villainization, this is in no way similar to oil companies charging us $5.00/gallon at the pump to bring in over $1 trillion back in 2022. The better analogy would be fishermen. Climate and industrial fishing has made it harder and harder for local fishermen in the Northeast to make a living. They need to travel further, work longer and harder, and ultimately charge more to maintain the margins that allow them to make a living. But have you ever seen fish on the menu at “Market Price” and gotten upset about it? Should we start capping the prices on lobster rolls? Of course not.

LEARN MORE: THE SECRET ABOUT THE MOST SUCCESSFUL PROPERTY MANAGEMENT CLIENTS

THE BEST SOLUTION IS RIGHT UNDER OUR NOSES

The biggest problem with the rental market is not greedy landlords but instead the lack of supply for those seeking an affordable place to live. Inflation, increased interest rates, and often local legislation makes owning a rental property more and more expensive than it was just a couple years ago. One best way to help landlords create greater efficiency, and thus maximize the addition of value to the properties they own at lower expenses, is to incentivize the hiring of property managers.

Property managers add balance to a system that currently lacks it. Yes, rent prices are up and that is a market issue, but incentivizing property owners to work with property managers can help ensure that the quality the renter is getting for the price they’re paying matches up. Without more housing units coming online quickly, we can’t do much to decrease pricing, but we can ensure that tenants’ needs are catered to and that they’re getting the most value possible for the rent they’re paying.

If you’re interested in learning more about Nexus’ services and you're in one of our many territories, contact any of our teams across Arizona, Connecticut, Massachusetts, and Rhode Island.

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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.

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