As the demand for rental units surge at a higher rate than the supply, most regions across the US continue to experience an increase in rental rates. It may come as a surprise that over 50% of American households spend at least one-third of their income on rent. To help better contain the situation, authorities have executed rent control or rent stabilization measures in some areas.
This hasn’t worked in favor of property managers who’re not earning the same level of profits under strict rent control rules. Let’s dig deeper into this precarious situation:
Rent Control vs. Property Managers
Rent control was first introduced in 1970s to make housing affordable. It was generally aimed at tying price increases to inflation or a similar metric. Today’s rent stabilization is based on the same concept. However, the regulation may discourage new construction from landlords or property managers. This can significantly limit the supply of apartments, which can in turn lead to high prices for renters.
It’s important to understand here that rent control applies to older units only that were occupied when the laws were enacted. Therefore, unprotected, new rental units can be subject to high rent due to a decrease in supply. This can significantly hurt the profitability for property owners when managing properties that fall under rent stabilization standards.
This is particularly true for multi-family residential units. If a property manager has several rental units with rent lower than the market value, they may not gain enough profit and face cash flow issues. Poor cash flow means the property owner may not be able to make the necessary upgrades to keep the building current. This may result in more complications and future maintenance issues in the future.