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Marketplace

Landlords have the upper hand in many rental markets

Annie Baxter Feb 17, 2015
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The vacancy rate for apartment rentals is at an historic low nationally, while demand is high. That puts landlords in a strong position.

Renters … not so much.

“We’re just sitting ducks in the rental market,” says Charlie Blasky, a 28 year-old renter in Minneapolis.

Blasky says his landlord gave notice in January that his rent would go up this spring if he and his wife renewed their lease on their one-bedroom apartment. Blasky says the cheapest option, a 12-month lease, would push the rent from $795 a month to $875, a 10 percent increase. That didn’t appeal to Blasky, who found the landlord to be inattentive to complaints about problems like noisy neighbors.

“Sure I could try to haggle,” says Blasky. “But when everyone’s trying to rent, what’s to stop the landlord from saying, ‘Yeah right. I’ve got someone who will pay that and won’t argue about it.'”

“Clearly, the pendulum has swung in the favor of landlords,” says Ryan Severino, senior economist with the real estate research firm Reis.

Severino says there’s a squeeze on apartments in many metro areas around the country, in big coastal cities and as well as metros like Minneapolis, Detroit, Knoxville and Omaha, to name but a few. Low vacancy rates in those cities are pulling the national average down to about 4 percent, by Severino’s measure, a level last seen — and only briefly — during the dot-com boom-and-bust days.

Severino says the reasons for the dynamic are clear: More people are renting these days. Despite low interest rates, mortgages are harder to get post-housing crisis. Meanwhile, the supply of rentals is low. That’s partly because apartment construction stalled during the economic downturn.

“It’s like economics 101. You have growing demand, and you have more or less static supply,” he says.

Severino says that makes it a great environment for landlords to raise rents.

“Landlords are rational, self-interested actors like anyone else,” he says.

Jeff Arnold understands that. He manages a building in St. Paul, Minnesota. with 57 studio apartments. Like landlords in many cities, Arnold has been raising rents, and he’s become a lot choosier about his tenants.

“Ten years ago, back when we were offering a free month’s rent as an incentive, I’d sometimes be a little more willing to overlook if they had a small collection item or something like that,” Arnold says. “Now I’ll look at that and say, ‘You know, I think I can probably find someone better.’”

His father, Bob Arnold, the owner of the building, says tenants with bad credit should work hard not to “mess up” once they land a place.

“Because then you can establish a track record. When you come up against a choosy manager, you made some mistakes but now you’re better,” he says.

Bob and Jeff Arnold both say when vacancy rates were higher, tenants could get away more easily with making late rent payments so long as they came up with some money. Today, Jeff Arnold says he wants to be compassionate if someone loses a job and pays rent late — but only up to a point.

“I might work with them for a month,” he says. “But if they can’t clean up their act and get me something within that time, in this kind of market, hey I’m going to find someone new.”

A Minnesota tenants’ rights group, HOME Line, tries to help renters understand that reality. Mike Vraa, the managing attorney, gives renters legal advice if landlords boot them out unjustly. Vraa also helps renters understand when they don’t have grounds to object.

“After two, three, four years they think the place is theirs forever as long as they don’t mess up. But it’s just not the case. It’s a temporary, renewable, or nonrenewable agreement,” he says. “We give people bad news about that all the time. It’s not just renewable just at your whim. The landlord is involved, too.”

That’s one reason Charlie Blasky wants to stop renting and eventually own. But first he has to save some money, which is hard to do as a renter. He’s leaving the apartment where rent’s going up. But his new apartment isn’t any cheaper. He just thinks it’s a better value.  

“Rent is going up everywhere. It’s harder to put that money way for a down payment on a house,” he says.

One bit of hope for renters, apartment construction is picking up nationally. That should increase supply and thereby loosen up rental markets.

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