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.
Without an ability to raise rental rates, certain property owners may not be able to afford property management services. Some property owners may consider self-management.
Moreover, apartment communities with strict rent control may not attract as much real investment as before. This may result in a low supply of rental properties. With a decline in property management opportunities, property managers won’t have the same money-making potential as before.
How Property Managers Should Respond?
While there’s not much a property manager can do in a situation like this, looking for ways to reduce expenses can help optimize cash flow for them. One strategy is to avoid cosmetic renovations. In certain cities, property owners can apply for hardship increases if they’re losing money on their property investment. Property managers can encourage and assist their clients through this application.
Another way to minimize the impact of rent control on profitability is allowing property managers to broaden their horizons and diversify their portfolio of properties by looking for rental properties in other areas.
Rent Stabilization In New York City
Now that you have a fair idea about how property managers vs. rent control works, it’s time to get decisive about what you want to do with your properties that come under rent stabilization. If you’re looking for a reliable property management company that can handle the situation well, Milbrook Properties Ltd. is the right agency for you!