By Tara Nelson / For The Herald
In 2021, a crisis hit our country’s post-pandemic rental market.
In the wake of federal and state covid-19 eviction bans and rent freezes, some of America’s small housing providers, searching for a way to get out from under delinquent property taxes and mortgages, chose to sell a massive chunk of private real estate. What happened next was largely to blame for the spikes in rental rates we’ve seen over the last five years.
In 2021, 25 percent of all rental properties owned by independent small housing providers gobbled up by hedge funds and private equity firms, according to a study by Pew Research.
Over the next two years, this left fewer properties available on the market, driving up property values. As a result, actual property tax payments jumped almost 40 percent and across the board, rents skyrocketed.
The knee-jerk reaction from many at the policy level has been a rush toward rent control or similar policies, which sound great on paper; especially to renters.
In recent policy discussions, the terms “greedy landlord,” “deep pockets,” “corporate,” “real estate lobby,” and other pejoratives have frequently been thrown around by lawmakers, activists and some stakeholders.
The verdict is in: Housing providers are the new social pariah.
Seattle billionaire Nick Hanaeur in his podcast “Pitchfork Economics” often talks about the connection between rising inequality and political and social instability. “The pitchforks are coming,” he said in one of the podcasts’ earlier episodes.
The thing about angry mobs with pitchforks is once they are mobilized, there is no more time for discussion. It’s unfortunate that current policy discussions surrounding housing and housing providers have taken on a similar tone.
While hedge funds and private equity firms stay comfortably out of sight in our nation’s boardrooms, small landlords remain a scapegoat for Americans’ justifiable anger toward our nation’s economic inequities. And while those monied interests can weather economic downturns and rent freezes, smaller property owners feel squeezed by the hydra-headed monster of corporate price gouging, global supply chain disruptions, increased cost of goods and services, and higher property taxes.
Washington state’s Constitution forbids rent control but legislators such as state Rep. Alex Ramel, D-Bellingham, for example, have found some creative ways around that by proposing “rent stabilization.” In 2023, one bill would have allowed a 3 percent increase per year or at the rate of inflation, whichever is greater, up to 7 percent a year. The bill failed by a narrow margin but this legislative session it’s likely Democratic lawmakers will push for similar legislation.
Policies like the stabilization bill not only overlook small landlords’ significant role in maintaining affordable housing, they actually hurt those who are part of the solution and threaten to undermine the very goal policymakers seek to achieve.
Even more than that, these proposals set an unfair precedent that puts the burden on small property owners to solve the long-term compounded effects of decades-old trickle down policies that have wreaked havoc on our nation and to this day continue to put corporate profits over investments in the general welfare of American people.
Small housing providers like myself are typically individuals who own and rent out just one or two properties. Many of us operate on a thin profit margin and are personally invested in our properties and tenants. Unlike larger corporations, we can be flexible and have the ability to adjust rental rates, late fees and other charges based on individual circumstances. We can also negotiate rents to tenants facing financial hardships or provide reductions for long-term occupants. This flexibility is a crucial part of the key to housing stability and accessibility, often allowing tenants to stay in their homes during difficult times.
We are also more likely to invest in property maintenance, upgrades and repairs, enhancing the quality of housing for tenants. By doing so, we also contribute to the overall quality of life in our communities and create safer neighborhoods.
Unfortunately, small landlords also have much less of a financial buffer than large investors when it comes to absorbing unexpected costs or disasters such as the covid pandemic.
Small housing providers are the last line of defense for housing affordability in an increasingly volatile and inhumane rental market that prioritizes profit above all else. We are essentially a thin green line between an unfortunate situation and an even worse situation. But while many of us are part of the solution, we can’t be the entire solution.
Creating a new layer of onerous bureaucratic regulations and legal hurdles for small property owners who don’t have a team of lawyers to help them avoid missteps will only give corporate landlords a leg up and drive others out. In other words, when the regulatory framework becomes too confusing or difficult for the average person to navigate, the average person will get out of the housing game altogether.
Property ownership has long been one of the only vehicles for upward mobility in this country. For many, it is their only retirement nest egg. Policies that put the burden of our broken housing system on those who have one or two rental properties are not only unfair but will only ultimately benefit those entities whose goal is to siphon the wealth out of every single American family and create a nation of modern serfdom.
Even well-intentioned public policy measures often create unintended results. Not only do rent control measures tend to only help certain populations (such as the elderly) in the short term, there is overwhelming evidence that rent control measures actually reduce overall housing affordability in the longer term. This is largely because landlords reset rents to market rates each time a tenant moves out. But the real kicker is when property owners, now faced with additional economic uncertainty, not only delay improvements but also raise rents as much as possible to account for even the possibility of foregone revenue in the future.
There’s a misperception in Olympia surrounding housing providers. In addition to lumping all landlords together, there seems to be an oversimplification and minimization by lawmakers of what it actually costs to provide safe and stable housing. Operating as a small, independent housing provider is work — often in terms of your own, unpaid labor — but it is also rife with risk. Housing providers assume the huge responsibility of making sure renters have safe housing with necessary utilities; even if the tenant pays those bills. When appliances unexpectedly break down, pipes freeze and burst, or when water heaters stop working, we are on the hook and emergency repairs are not cheap.
A housing provider that only charges enough rent to cover their immediate property taxes, mortgages, utility bills, property insurance and business insurance each month is not a responsible property owner. Still, property owners who charge enough rent to put money into an emergency repair fund are unfairly painted as “greedy.” And those who don’t charge enough to save up for maintenance are called “bad at business.” It’s a game small housing providers simply can’t win.
Housing providers don’t have to be the enemy. Truly progressive policies would actually encourage landlords to be part of the solution. Arbitrarily capping rents without accounting for expenses involved in maintaining a quality rental unit damages renters as much, if not more, than it does landlords.
For example, if I own a unit that can rent for $2,200, but choose to rent to a Section 8 tenant for $1,600 that’s a $600 per month difference in revenue. That $600 to a landlord is a new electric stove, a new washer or dryer, two months of water and sewer service; and that’s not including labor.
A comprehensive policy would address our housing crisis while also finding ways for housing providers to bridge the financial gap so more low-income families can find housing through state property tax deductions or credits that could go into a collective emergency repair fund for landlords who offer below-market rents. Simply expecting private property owners to shoulder the cost of our failed rental market is not only unreasonable, it’s just bad policy.
Other alternatives:
• Property tax reductions for those offering below-market housing to low-income or participation in the Section 8 rental program. •Connection fee waivers for new construction of owner-occupied properties with attached or detached dwelling units. •A state fund that small landlords can pay into and tap for emergency repairs if their rents are within a certain range.
• Separate rules for small landlords and large investors and corporations to level the playing field.
There is also legislation currently being proposed in Congress, such as by Rep. Adam Smith, D-Wash., and Sen. Jeff Merkley, D-Ore., that would require hedge funds and private equity firms to sell off their entire portfolio of single-family homes over the next 10 years.
As we enter the 2024 legislative session, my hope is that state lawmakers consider a truly effective approach to sustainable housing affordability, recognize the vital role small housing providers play, include them in policy discussions, find creative incentives to make it pencil out for them and encourage them to be part of the solution.
Tara Nelson is a 2006 graduate of Western Washington University’s editorial journalism program with a minor in economics. She is a former legislative aide, Section 8 housing provider, and co-founder of Terra Firma Consulting +, which specializes in local political campaigns.
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