Landlords Under Stress from High Apartment Vacancy Rates
The single-family housing market isn’t the only U.S. housing segment under stress.
Rental apartment vacancies stood at 7.8 percent entering the fourth quarter of 2009, the worst vacancy rate since 1986, according to real estate research firm Reis Inc.
The apartment vacancy crisis has spread beyond rent-heavy cities such as Los Angeles and New York City. Lake Erie Landlord Association President Vassie Scott has noticed the problems in northern Ohio.
“Vacancies are definitely up. As far as tenants are concerned, we do our best to try,” Scott said. “Instead of paying a full security deposit, we ask that they possibly pay the deposit in monthly installments. You have to be nicer because anyone with fairly decent credit is able to buy a house. Most people who are renting are people who’ve had issues in the past. We’re more lenient now as far as credit checks are concerned.”
Landlords ‘Doing More’
He said landlords “now are doing more” such as offering new carpet or painting.
“A good tenant now is a priceless commodity. We’ll offer upgrades to the units. I just talked to one tenant who wanted to move to another city because her mother is sick, she has a child with autism, and she spends too much on gas money traveling. I offered her a gas discount reduction in the rent every month,” Scott said.
Associate Editor Doug Filaroski of The Business Journal in Jacksonville, Florida lives in the state, and over the past two decades he has been leasing apartments there and in Pennsylvania. He said he considers himself lucky.
“I have a total of 12 tenants. I only have one unit in Florida, and it has the same tenants since 2001. I have about one vacancy a year since 2007 and I was lucky to fill them quickly,” Filaroski said.
He believes this is partly due to the location. “I think many landlords are competing with vacant homes and condos, but three of my units are located in Pennsylvania, where there wasn't a condo craze and there are not as many vacant homes.”
Giving Tenants Incentives
Although the apartments are occupied, Filaroski believes he should provide incentives for his tenants to ensure they stay.
He told of one tenant who had become unemployed. He let her go two months without a rent payment until her unemployment benefits kicked in.
“I have not raised rents in two and a half years on any of my units because of the economy,” Filaroski said. “It's been difficult because my costs have risen, but I feel it is better to keep tenants than to receive the rent increase and risk losing them.”
Scott said, “It’s a challenging market, but landlording—I like to consider ourselves housing providers—is a business. You have to run it in a businesslike fashion, but you have to recognize problems for people. I've given a lot of consideration for people down on their luck recently, but I'm not going to let anyone take advantage of my kindness as a weakness and try to use the economy as an excuse not to pay rent.”
Filaroski said landlords are trying to find a balance between covering their costs and keeping tenants. Most are keeping rents down to compete with vacant homes and condos that are flooding the housing market. This is creating competition and bringing down rents.
On the other hand, he said, some factors are beginning to help stabilize apartment rents.
“I've read people are downsizing, and that is probably helping apartment rents a little. More so, I would say the difficulty getting a mortgage from a bank—most of which now require 20 percent down on a home purchase—is driving some people to the apartment rental market,” Filaroski said.
Scott said all the 500-plus members of the Lake Erie Landlord Association are feeling stressed.
“You’ve got several different types of landlords: Those landlording a very long time, who owe very little on their properties, and also those who have large mortgages [who were] buying properties while prices were still up. We are all struggling,” Scott said.
Krystle Russin (email@example.com) writes from Texas.