In Minneapolis, there is an active discussion about rising rents, whether supply and demand affect rents, and what to do about providing enough affordable and work-force housing. Related issues — markets, incomes, land use controls, local politics and processes, public subsidy and how it’s used — are all complex. No blog post, tweet, or newspaper article can do the issues justice.
As a person who passionately believes affordable housing is a human right, I find the discussions a bit frustrating. This is largely due to the depth and diversity of my personal perspective.
- I’ve been a mom-and-pop landlord in a four-unit, owner-occupied building since 1996.
- My graduate work focused on affordable housing policy.
- I’ve worked (and volunteered) in the world of affordable housing policy since 1997, working with both “naturally occurring” and the subsidized kind.
- I’m a close observer of neighborhood, city and regional housing policy and have watched how they impact affordable housing since 1997.
My frustration also stems from my own unorthodox and solutions-focused personality. I want to solve this problem. That means we need a politically viable solution, something that meets the scale of the problem.
While no series of blog posts can capture nearly two decades of learning, I try to dig in a little deeper in this series of posts. Because my policy goal is affordable housing, I’m primarily focused on rental housing. (People who can buy a $180,000 house don’t need any more policy and subsidy support.)
I ask you to suspend belief for a few posts. Please set aside simple ideas like “more housing = cheaper rents,” or that housing is not subject to market forces, ideas like high “X” costs is what causes rising rents, ideas that landlords are out to stick it to tenants, or whatever else might be hiding in your instincts.
I hope to start a more nuanced and honest discussion about how the pieces fit together, where there’s something we can do about it, and what we might be able to do about it.
My house, with a nearly-finished porch.
Part 1: How I Set Apartment Rents
I keep hearing people comment on the causes of rising rents in Minneapolis. Some people say luxury buildings are forcing them up, others say increasing taxes are forcing them up. Neither of them make sense to me from my perspective as a landlord. Let me tell you how I set my rents.
First, a caveat: there are many kinds of landlords. The most obvious kinds are the ones who have subsidized housing (with contracts limiting the rent they can charge) and the ones who offer market-rate housing. There are sub-groups in both categories, with big distinctions in the market-rate set. (I suggest pages 19-22 of The Space Between to learn more).
Just as there are sociable house-cats and antisocial house-cats, within the mom & pop genre of landlord we have different personalities, options, obligations, and priorities. I owner-occupy my building, and want nice neighbors. I also want to live in a nice, well-maintained house. That means charging enough rent that I have $80,000 to replace the falling-down porch once a century, $25,000 for a new roof every 25 years, and $15,000 to repaint the trim & keep the lead paint chips at bay. I aim to have enough cash on hand to cover the random $250 toilet repair or $500 dishwasher replacement.
My Standard Rent-Setting Process
When I get notice for a 3-bedroom apartment, I always use the same process to figure out what rent to advertise:
- First, figure out what the market is charging for something similar. If I ask too much, I’ll have an empty apartment.
- I create a spreadsheet. I want to compare apples to apples, and the apartment I’m offering is not like all of the others. I don’t include parking in rent, so I adjust down ($60) when comparing to units that do. I include all utilities in rent, so I adjust up for units that do not ($40 if electric not included, $40 if heat not included). And some apartments are different in unpredictable ways — fancy or horrifically run down, cool quirky features, whatever.
- I head to Craigslist. I search for 3-br apartments in Uptown. 3-br apartments in Powderhorn, Longfellow, North Minneapolis, and St. Louis Park are not in the same market as my building.
- I limit my comparisons to buildings with similar character to my building. That means hardwood floors, wide wood trim, ~100 years old. 70’s walk-ups with sliding windows are not in the same market as my building. Neither are new (or recently rehabbed) condos.
- I aim for a minimum of 12 comparisons, avoiding properties that are too far away or that were posted too long ago. If I can’t get to 12, I loosen those rules to have a big enough sample size and adjust.
- I have the spreadsheet calculate the “adjusted rent” for each comparison. I calculate the average and the median of the rents. I look over the range of rents.
- Finally, I use a super-scientific method of staring at the numbers for a while, and then adjust the outcome based on my gut. THAT is the rent I’ll advertise.
What’s Market Rent?
Things that Influence my Gut
Most important, I have to remember that I can’t get away with charging MORE than the market. If I set my rent too high, I have no renter. It doesn’t matter if I just plopped down $80,000 for that new porch, or if my taxes went up or down.
Second, apartment sub-markets are nuanced. When I avoid 70’s walk-ups and new condos, I’m intuitively putting myself into a sub-market. It’s not better or worse, they are simply different from my house. I don’t know whether it’s the 3- or 4-star units referenced in this article on “filtering,” but I think of it as “really nice hard-wood floor with varnished trim” units.
Third, my building has some unique features some potential residents care about. Location determines the market, parking and utilities matter in the total rent, the rest matters only to a subset of people. My units are:
- in a desirable neighborhood,
- all utilities included,
- without parking (unless you want roll-in, secure bike parking),
- owner-occupied,
- near great transit service, and convenient for biking
- pretty and well-maintained with new kitchens.
Finally, as an owner-occupant, I want good neighbors. I share a house with them, and I’m trusting them to take care of my home. I want my rent low enough that I’ll have multiple applications. I’d like them to pay rent on time. I’d prefer people who are “grown-ups” and likely to live somewhere for a few years over recent college grad roommates who are likely to be a great neighbors for a year and then move on. If I’m lucky, they’re environmentally conscious (to keep my utility bills down), vote, are respectful of me and the other people in the house, and thoughtful when using shared space.
Long-term Choices I’ve Made
When I moved in almost 20 years ago, the house was dumpy. It wasn’t falling apart, but the dingy walls hadn’t been painted in years, the kitchens were super-cheap and falling apart, the roof needed to be replaced. I chose to fix up the units, with interesting colored paint, new kitchens, updated electric, new bathrooms, and other random improvements.
I intentionally created slightly-nicer-than-typical units because I think that will appeal to the kind of renters I want to attract. My preferred renter isn’t just focused on bottom line rent, but wants a nice place to live. The improvements allowed me to raise my rents a bit. My units have filtered up, not to the most luxurious level, but to a higher rent level than when I bought them.
So what?
The things that matter to me — low turnover and nice neighbors — are different than what matters to other owners. Other small landlords might like less hassle (whereas I like gardening with my neighbors). Bigger owners might use turnover as a maintenance tool, taking the time to make improvements. Subsidized owners might prioritize lower expenses.
For all of us though, rents are determined by what the market will bear. Set them too high? There’s a problem with the cash flow. No matter the building expenses. (Even in subsidized properties, the legally permitted rents are sometimes more than the market will bear.)
There is a floor to what I can charge without losing the house. But if rents were to drop that low, I’d first cut amenities (no more garden mentor!). Then I’d minimize maintenance, ditching the cleaning service, putting off minor repairs, waiting two more years to replace the roof. The place would would be less nice; it would filter back down.
I can’t wait for the rest of the series. How many neighbors on your block are also renting out units? Do your renters struggle to find parking, if they need any?
Hi, Eric.
There are about 65 apartments on my block (the opposite side of the block is 100% commercial buildings). There are 4 people who manage or own the building living there, out of that number. Some of the properties are bigger owners, but several are buildings similar to mine.
I do have three parking spaces available for an additional charge, and I give first dibs on empty garage space to my residents, but none of my tenants have wanted to rent one in years. We’ve had no more than 1 (maybe 2?) car in the 9 bedroom house in the last 7 years.
I end up posting them via a sign in my front yard, and it seems that parking is easy enough that the only people who have been willing to pay for them are using them for storage — not universally, but generally.
This is great. Looking forward to hearing more.
This was a good read for me, Janne. I don’t often make it through an entire streets.mn post. Not because I’m not interested in the content, rather that I find myself lost in the wonk and/or complexity. I’m a lay person who cares deeply about the issues covered by streets.mn, I just can’t keep up with the level of analysis sometimes. So this post of your own experience and story was of interest to me, and like the other commenters, I look forward to the future posts.
I’m curious as you seem to take great pride in offering affordable housing but I’m wondering if you’ve ever been burned by a tenant or what precautions do you take to ensure you get respectable tenets? Have you ever thought about venturing into Section 8 housing?
Corey, my work is in affordable housing, but I don’t think anyone would call these units affordable housing. (I haven’t double checked rent levels against affordable rents, though, and they aren’t far above typical limitations.)
I haven’t ever had someone ask if I would take Section 8; if someone did, I’d figure out what the process was and take it if I thought I could pass the inspections and they’d be good neighbors. I guess I might add that the market in my neighborhood is such that there’s no motivation to figure that out proactively, or target that sub-market of renters..
Burned, and burned. Never very seriously. I find that it really, really helps to live upstairs. I notice what is going on around the place, and have found it easy to intervene in a positive, friendly way when there was reason to. I have a few stories of things that people who have never lived on their own do, just from not knowing — it’s never been vindictive!
All of that is a little luck, a little attention, and a little the market I’ve chosen to appeal to.
Interesting perspective and it’s good to see the landlord’s point of view. We’ve been trying to rent something in one of the close southern suburbs (S. St. Paul/Inver Grove/Eagan) and it’s been a challenge. I was unemployed for quite awhile and our credit/rental history took a beating. So trying to rent something now-even with a good income–has been a real challenge.
Rising rents aren’t the only challenge for renters. A tight market makes it a lot more difficult to rent a place, because landlords have their pick of applicants. I understand that point of view, but it can be difficult for those of us just trying to get a second chance.
Absolutely, Rick. Come back in a week and then in two to see what I suggest to make life easier for you to find a place. I picked on rents because that’s what I’ve seen discussed more than other challenges.
Looking forward to that as well. On the path to living without borrowing much from anywhere, so I expect my credit history will shrink with time. Wonder how that affects this.
Out of curiosity, have you ever noticed that step 7, using your gut, ever has a bias? That is, do you generally adjust it up or down from the median and average that you find in step 6?
Hi, Zach. I do this infrequently enough that it’s hard to know whether there’s a systematic bias or not — or even to remember what I did last time around. I *think* that I don’t generally make much of an adjustment, but when this is something I only do once every couple of years, memory isn’t very accurate.
Usually, my gut is mostly about whether the comparisons appear a little nicer than my place or a little less nice than my place, and how many fall on which side.
What my memory tells me (possibly very inaccurately, I don’t know), is that my units are usually a little nicer than most, and because I want to charge a tad on the low side to be sure I get good neighbors, I don’t make much of an adjustment.
Nice post, Janne. I’m looking forward to the rest. Maybe I’m missing something, but I’m not finding the context you intended in the link to ‘The Space Between.’ It looks like a book or article, but the link goes to Lander’s 2320 Colfax development. I’d like to check out the pages you referenced, can you clarify?
Oops, sorry Alex. I’ve just fixed the link, and here it is for easy access:
http://www.fhfund.org/wp-content/uploads/2013/06/Space_Between_Final_June-2013.pdf
I challenge Janne to explain in greater detail what she means by “nice neighbors” whom she can “garden with”.
Laetitia – That’s a good question, and I should be challenged on that. There are a lot of implicit cultural assumptions in that phrase.
One of the things I like BEST about owning and managing this house is the opportunity to meet and get to know (and build trusting relationships with) people I otherwise would never have an opportunity to interact with. I value difference in my neighbors.
The reason I reference gardening is that I have some organic gardening plots available to residents on site, and I have used them as a tactic to build community within the house and with the neighbors — it helps people get past the random late night holler if they have spent time together in a less difficult situation. I certainly don’t expect residents to garden, but it’s available. (Residents get first dibs, and leftover plots are available to people in nearby properties.)
“Nice neighbors” generally
–respect common areas (hallways, shared bike garage, yard), not leaving trash or personal belongings in them
–minimize late-night parties that keep the whole house up, or minimally invite the neighbors to the parties and respond respectfully if they get a respectful request to quiet down after 11pm (note, children’s playing upstairs is 100% great)
–greet one another
politelywhen bumping into one another in common space or outside (anything from a nod to a conversation)That feels pretty complete to me, but what might I be missing?
Janne, just because you only look at similar housing stock on Craigslist to set your rent doesn’t mean that nearby luxury housing construction isn’t indirectly having an effect. The businesses that follow new high-end housing (as well as the accompanying new levels of intolerance for certain illegal activities like “loitering” or using drugs in a park) are probably gradually driving certain demographics out and others in to the neighborhood. All these things are affecting the supply/demand equation for rent in any decently well-kept piece of real estate in your neighborhood (and you clearly operate one of the nice ones).
I’m sure you already understand this, but I guess I still don’t get the “so what” of this beyond that yes, landlords are people too. It still seems like the trend to only build high-rent housing in Uptown is going to drive rent up in older housing. The fact that by your own admission you’re at a point where you can be picky about your tenants is probably even contributing to that trend in an oblique sort of way–the neighborhood gets a few more stable, “environmentally-conscious”, interested-in-gardening tenants, another neighborhood gets a few less.
I’m all for a nuanced discussion, I just hope that “nuance” doesn’t just turn out to be code for shutting out any criticism of landlords and of the housing policy status quo in general.
If we’re doing an ethnography of rent setting, I’ve had some opportunity to see the process by which a house on our block became a Section 8 rental. When we moved here the building, a small duplex, was condemned and vacant for a couple years, and everyone expected it to be torn down. A woman bought it (looking at records, for $18k) as her first property as a landlord, with the expectation of doing more of this. The building was in worse shape than she realized (lots of foundation problems, mold, etc), and so she both had to put more money into it than she expected, while also cutting a lot of corners. She was not planning to do Section 8, but when everything was finished she couldn’t get the rent she wanted to justify her investment using the open market. Section 8 basically filled that gap, letting her charge a higher rent for low-quality housing. But I don’t think it’s the slum lord situation that you’d normally imagine, she continues to invest in the property (in part because she’s emotionally invested), and in a way the tenants get a reasonable deal because they pack quite a lot of people into the building, more than a traditional landlord would probably be comfortable with. Though she has evicted people over these issues, not because of the number of people but because of problems with specific “guests”.
Hello Janne,
If I have the location right, there is house a couple down from yours that’s been boarded up and vacant for a long time. I moved into the area a few months before the new porch was added to your house and unless I am mistaken, the house I’m referencing has been empty for the entire time I’ve lived nearby. It seems odd to me that someone would let a property like that go empty given the demand for housing in the area.
As a landlord and housing policy expert, could you speak to reasons why a property would go vacant in a desirable area?
Nick, I ask you avoid publishing my address.
You are correct that building has been boarded for years — possibly more than a decade, although I’ve lost count. I could never understand the owner’s strategy — I can’t come up with a rational explanation. Having been boarded, I suspect the financial viability of renewing the rental licenses is nil. Rather than being grandfathered in on code requirements like the continuously occupied properties on the block, it may have to be brought back up to code.
The owner used to live a couple doors up, and we were neighbors for many years. She acquired two additional properties on the block (including the currently boarded one), moved to a suburb, evicted some troublesome residents from the one you mention, had it re-sided, but then almost immediately boarded the one you reference after some troublesome tenants, tried to sell the two contiguous ones and succeeded in selling one, let the other go vacant for years, left the taxes on the two properties go unpaid until they were on the verge of tax forfeiture twice…
You know, maybe if we sometime find ourselves at a streets.mn event, remind me and I could tell you as many details as you wish and my best guess as to why. I’d rather avoid offering unsubstantiated and potentially libelous theories here
Thanks for the detailed response! Interesting stuff. It reminds you that for all the seemingly logical steps undertaken by you and other landlords in managing property, at the end of the day “animal spirits” play a big role in housing markets.
Nick, if you look at the vacant property map posted on streets.mn this week, it’s pretty obvious that “animal spirits” play only a very small role in housing markets. Where demand (and cash flow/potential profits) are high, things like my neighbor are highly atypical.
Map here:
https://streets.mn/2015/03/23/map-monday-vacant-property-in-minneapolis/