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March 5, 2010

What rights should renters have?

A new report in Montgomery County asks the government to tip the rental balance of power more toward tenants than things currently stand -- including a cap on rent increases.

The Montgomery County Tenants Work Group, appointed by the county executive after renters advocated for improvements to their lot, is in favor of a law that would "maintain reasonable and predictable rent increases."

"Tenants who move for reasons of greater affordability report that they cannot anticipate remaining in a rental unit or complex for more than one or two years, due to the unpredictable nature of rent increases," the group writes in its report. "More than 43 percent of renters in the Renter Satisfaction Survey [commissioned by the group] reported that they are not confident that they will be able to afford to live in Montgomery County in the future."

In that survey, almost 20 percent of renters said their annual rent increases topped 7 percent. About half said their annual rent increases were in the 4 to 7 percent range.

The group, in case you're wondering, includes renters, renter advocates, government officials and two people representing the landlord point of view -- a property manager and an Apartment and Office Building Association representative. (UPDATE: The Apartment and Office Building Association notes that it, the property manager and the county officials didn't vote on the recommendations -- those were made by the renters.)

Takoma Park already has a rent stabilization law, the group notes. (New York is probably the city best known for its controls on rent increases.)

UPDATE: The Apartment and Office Building Association's W. Shaun Pharr takes issue with the idea. In a statement this morning, he said: "Rent control is a failed social and housing policy that has been outlawed in 34 states because of the damage it causes to a community's housing stock by discouraging investment in rental housing." 

I thought this might spark discussion among Baltimore renters -- and landlords. What do you think of the recommendation?

The tenant group, by the way, suggests that any law include an allowance "for renters to contribute reasonable additional payments beyond the cost of rent to cover the cost of unit improvement."

Other suggestions from the group:

--"The required 60-day notice that landlords must give tenants regarding rent increases should be extended to 90 days."

--"Pass a 'just-cause' eviction law in Montgomery County, which would only allow for evictions for reasons that would be specified under the law, such as delinquent payment; criminal activity involving the tenant, on the property; substantial damage to the rental unit; or a move by the owner to permanently remove the unit from the rental market so they or a family member might occupy it."

--"A majority of the tenants (51 percent) must vote to approve a condo conversion."

It's tough economic times for everyone, apartment owners not excepted. Rentjungle.com, one of the apartment-search sites out there, says average rent decreased about 4 percent in Baltimore in the last six months -- a $40 drop.

"Difficulties in the real estate market didn't push as many people into apartments as the industry would have expected," Rentjungle.com founder Rick Ferris said in a statement. "Increases in families renting instead of buying were offset by existing renters taking on roommates or moving back with parents."

The company's figure is based off advertised prices. I'm curious if anyone's personally experiencing a rent drop, from the tenant or landlord side of things. Or a big rent increase, for that matter.

Posted by Jamie Smith Hopkins at 7:00 AM | | Comments (21)
Categories: Landlording, Renting
        

Comments

Rent control measures have been shown to create far more problems than they were intended to solve.

Even the compromise approach with market adjustments at turnover don't really help.

If the County is worried about having "affordable housing" for the low(er) income people they need then the county should cut the costs to operate such.

No RE Taxes, free land to build, no interest mortgages are a few ideas to lower the COSTS to operate that would solve this issue better.

As to the other measures...
1) 60 days notice time (for whatever) is already longer than most areas and in problem situations is too too long. In non problem situations it isn't an issue either way.

2) The just cause issues sound like what state law already is... under a lease. As regards "month to month" tenancies... latitude is needed to operate effectively. As with notice... in non problem situations it isn't an issue either way.

3) Condo's shouldn't be used as rental units. But if//when a LL wants to sell or convert it is no ones business but theirs.

In general, responsible tenants don't need any more "protection" from their (mean, nasty Simon Legree) LL's than exists under current law.

To avoid unexpected rental increases, tenants should see an attorney so they are protected by the contract. The tenant can easily put in place a clause that caps the rental payments upon renewal. Also, I find it hard to believe that there are not affordable rentals out there. If the price is too high, then you just might have to sacrifice and live in a smaller place or one that is not in the best neighborhood. Craigslist has a ton of rentals that are affordable.

How much of a role does the market play in keeping rents in check?

Rents should be set to cover costs from the get-go. Don't initially set rents at an unsustainable level, and you won't have to surprise a tenant with a rent increase. How much could expenses vary from year to year?

If there's a lot of inventory available, landlords would do well to keep rents stable -- or risk losing a month or more rent while refurbishing an apt when renters flee for cheaper digs.

Please, let's keep more nanny state programs out of Maryland. Why would I want to invest in Maryland real estate, with arbitrary rent controls working against my ability to receive a fair return on my investment? Time and time again it has been demonstrated that the free market system works, and that socialistic approaches inevitably fail.

Despite "MrRational's" comments, rent stabilization laws work just fine. Landlords make reasonable profits and renters can count on long-term stability. This is good for local economies and communities. In areas where rent stabilization is in place, like DC and Takoma Park, Maryland, landlords and owners continue to build new rental housing and prices remain profitable for owners. As tenants rights advocacy increases, we can expect to hear more shrill threats of decaying housing stocks and fears of market regulation and impending disaster. Nothing could be further from the truth. No one believes that mortgage interest rates should be allowed to grow 4, 7, or 40% higher each year as we have seen with rents in Montgomery County. Renters deserve the same stability as home owners and landlords should be obligated to keep rent increase fair.

Something needs to be done about add-in costs to renters and this does not seem to be addressed here. There are some apartment complexes that used to offer electric included in rent that no longer do and people are now charged for electric based on factors other than actual usage since there are no meters. Same goes for water - read apartmentratings.com and you will see a lot of complaints about high water bills. I am talking $100-$200 per MONTH for water - and again there is no meter. The complex uses things like square footage, number of bedrooms, and number of people on the lease to come up with the amount. I know someone who traveled a lot who had to pay $130-$160 each month in water costs and she lived alone and was hardly there. I live in a 2000 sq ft townhouse and I pay around $20 a quarter (less than $100 a year). I wonder what sort of premium the apartment complexes and their hired billing companies are making off these water costs?

When a lease ends the landlord should have the right to raise the rent as much as they want and the renter should have the right to pick up and leave. Government should resist the urge to dive in and alter the terms of private contracts, since it will only decrease the willingness of people to enter into contracts in the future.

I might be wrong so I hope someone checks my numbers, but I think there is a problem with the way the survey was taken (like half said their rent increased by 4-7 percent). The related questions are as follows.


Q.3a. How long have you lived in your current rental? (N=585)
1. Less than 1 year 17.4
2. 1-2 years 26.0
3. 3-5 years 27.2
4. 6-9 years 10.4
5. 10 years+ 19.0

Q.3b. How many times has your rent increased in your current rental (within the past five
years)? (N=572)
1. Never 25.5
2. 1-2 times 32.2
3. 3-4 times 21.0
4. 5 times 14.5
4. 6+ times 6.8

Q.3c. If you answered that your rent increased one time or more, how much was your
average annual rent increase? (N=404)
1. 0%-3% 29.0
2. 4%-7% 51.7
3. 8%-12% 14.1
4. 13% to 15% 2.5
5. 16% or more 2.7


First, Question 3b should be broken up according to how many years they lived they there. It matters if someone rented a place for 4 years but only saw rent increase in 2 years.

The bigger problem is with question 3c because they shrank the sample size. It only counts people for people who saw a rent increase. Poeple who saw no rent change or even a rent decrease are not counted in 3b.

So the following statement in the report in very misleading:
"According to the current Renter Satisfaction Survey, 70 percent of renters surveyed said their rents were increased by at least four percent, while nearly 20 percent said their rents had increased more than eight percent (see Appendix A for full survey results)."

That statement only applies to people who saw a rent increase. For all renters the number is lower.

My suggestion would be to develope a better survey before taking action.

Good point, jfg -- the question about rent increases definitely should have included people who would answer "0 percent." What percentage of renters had their rent increased by X amount is more useful to know than what percentage of renters had their rent increased by X amount AMONG renters who saw increases.

Another potential problem with the survey (assuming those questions were actually asked as listed), is that they ask the renters to estimate the percentage increase. A better method would be to ask how much they actually paid, and then calculate the percentage.

I highly doubt the people polled in the survey actually calculated the percentage. More likely they estimated, and it wouldn't be surprising for people to estimate on the high side. The most popular number I would expect is a good round number like 5% (just like the survey indicates).

So the survey gives what people thought the rent increased, but that's not the real rent increase.

I have several rental properties which I have rented for about 4 years. I barely have any cash flow after all of the expenses involved in rental properties. I certainly do not have enough cash flow to even afford health insurance. Between real estate taxes (one2 BR rowhome in Locust Point costs $5600 a year in RE Taxes), homeowners, mort. interest, renovation costs, repairs, water bills, and all the other additional costs that arise, it is so challenging financially. I am not a slum lord. I had all the required inspections for renovations and general safety. Sadly the more responsible landlords make so much less than the slumlords. Local and state governments do not support us. If you have a renter who won't pay, don't get me started on the city's system for eviction.

Ditto nearly everything that Tina said. Most of the cost of repairs and maintenance for my two properties come out of my own pocket. And with relatively low mortgages, the tax/insurance portion triples the payment on the houses. But I care very much about keeping the homes is great shape.

I am always saddened to read the too frequent comments by people who think anyone who doesn't like it can just move...No one should have to live like that, especially working families, retirees and seniors. On the rental business, some landlords make more money than others, but the fact is owning rental housing is a very profitable business. I have asked Dr. Harry Basehart of Salisbury University, who conducted the survey, to answer your survey question. This is the first scientific survey ever conducted of renters in MoCo and was conducted under rigorous standards. The County had been using a non-scientific survey of landlords that was not scientific and you know what...according to that survey, very few folks have their rents raised beyond the County's Voluntary Guidelines..what do you know! As for percentage increases, this is perfectly accurate. I rent. Landlords are required to list the percentage increase each year and state the County's guideline figure. Tenant's aren't guessing wat their increases are, they know. My rent has been raised between 7 and 10 percent each year for the last five.

An added comment to my earlier, mostly in reply to @Matt Losak. If people want more long-term security in their housing arrangements and want to decrease the risk that they will either have to pay more or move on, they should enter into longer term leases. The fact that rental housing is profitable is no reason to throw existing contracts out the window. If landlords are always forced to worry about having their leases re-written, altered, or thrown out entirely by overzealous regulators then they are going to either charge higher rents up front or find other uses for current rental properties. Either way working families suffer.

Please correct me if I'm mistaken, but I was a renter in Maryland for many years before purchasing a home. Except as regards rent control, it has been my understanding that Md laws are already quite renter friendly. I have been struck by the very high rents now charged in what were once low-rent, low income areas/ complexes, but am not sure that across-the-board rent controls solve the either the rent issue or availability problems for lower income families or individuals.

As the person who coordinated the survey for the Montgomery County Tenants Work Group, I have been asked to respond to a number of methodological concerns. I’m pleased to do so. Before answering, I’d like to say two things. First, the comments by jfg are astute. Second, be assured that in the development of the survey and its implementation that our goal was to obtain a fair and accurate reflection of the opinions of renters in Montgomery County. And I believe that we did a good job of this. Now, to the specifics.

First, jfg writes, “First, Question 3b should be broken up according to how many years they lived they there. It matters if someone rented a place for 4 years but only saw rent increase in 2 years.”

My comment: Yes, this is true, but the work group was seeking a general picture of how often rents increased during the last five years. jfg also states that it is important to know the relationship between the number of years of occupancy and the number of rent increases. As one might expect, there is a relationship, a crosstabs that I just ran between Q3a and Q3b verifies this. For example, 56 percent of respondents who have lived at their current rental 3-5 years had their rent increased between three-five times. At the other end, 84 percent of those who have lived at their current rental for less than one year have never had a rent increase.

Second, jfg writes, “The bigger problem is with question 3c because they shrank the sample size. It only counts people for people who saw a rent increase. Poeple who saw no rent change or even a rent decrease are not counted in 3b."

My comment: There was nothing tricky here. The sample size is smaller in Q3c, as jfg notes, because the respondents who did not report a rent increase were asked not to respond to the follow-up question. The sample size of Q3c was 404 and Q3b was 572. (The difference of 168 represents those who never had a rent increase and those, a few, who responded to Q3B that their rent had increased but did not answer the follow-up, Q3c.)

Third, jfg, with Jamie Smith Hopkins agreeing, writes: "So the following statement in the report in very misleading:”
"According to the current Renter Satisfaction Survey, 70 percent of renters surveyed said their rents were increased by at least four percent, while nearly 20 percent said their rents had increased more than eight percent (see Appendix A for full survey results)."
That statement only applies to people who saw a rent increase. For all renters the number is lower."

My comment: jfg is correct. I don’t know where the error occurred, but from working with the work group I am sure that it was not intentional. The data should have been reported in one of two ways.
(1) According to the current Renter Satisfaction survey, 70 percent of the renters surveyed WHO HAD THEIR RENT INCREASED said their rents had increase by at least four percent, while nearly 20 percent said their rents had increased more than eight percent. OR
(2) According to the current Renter Satisfaction Survey, 50.2 percent of all renters surveyed said their rents were increased by at least four percent, while nearly 13.6 percent said their rents increased more than eight percent. Twenty-five percent said their rent had never increased.


Fourth, jfg also writes: “Another potential problem with the survey (assuming those questions were actually asked as listed), is that they ask the renters to estimate the percentage increase. A better method would be to ask how much they actually paid, and then calculate the percentage.
I highly doubt the people polled in the survey actually calculated the percentage. More likely they estimated, and it wouldn't be surprising for people to estimate on the high side. The most popular number I would expect is a good round number like 5% (just like the survey indicates).
So the survey gives what people thought the rent increased, but that's not the real rent increase”

My comment: We discussed this and decide not to ask respondents the exact amount they paid because in our judgment it would be too invasive and could discourage people from responding to the questionnaire. As with personal income questions in surveys, people are more comfortable saying in what range (e.g. $30,000 to $35,000) their income falls rather than stating their exact income. We concluded the same on our questions about rent paid and rent increases. I also agree with Matt that most renters know by what percentage their rent increases.

Finally, I hope these responses clear up questions that were raised. At each stage of the survey process we made every effort to adhere to the best practices of survey research.
Harry Basehart
Professor Emeritus of Political Science
Salisbury, Maryland

Its amazing the jurisdictions want to put a cap on the amount we landlords can charge for rent. Why dont we tie the rental increases to the annual uncapped tax increases the counties like to stick us with? Or the increased rental license fees?
Many of us cant vote in the jurisdiction where we own a rental, and we dont benefit from the Homestead Tax credit, so the counties just tax and assess us to death.
I only own 1 rental in MOCO luckily. I wouldnt even consider areas like Balt City, with sky high taxes and a corrupt, business unfriendly govt.
The Govt needs to mind its own business. If its so profitable, Ill look for the panel members to start expanding their real estate holdings. Its simple, right? No, its not.

Hearing from landlords how cash flow is slim just goes to show how much further real estate values have to drop. If you are an investor looking to rent out a property, cash flow is the first thing to take into consideration. How much money will be coming in over taxes, insurance, maintenance, and mortgage (if you have one). Most landlords want at least a 10% capitalization rate on their money. Anything less is not worth it. If you want to put in place rent control, then values will most certainly go down as investors will not pay for current prices. The price of the rental will have to go down to maintain the desired capitalization rate.

What landlords should consider doing is to buy rent loss insurance in the event the tenant fails to pay. The eviction process can take some time. I know landlords who only lease their rentals on a monthly basis with a 2 month deposit. In the event the tenant is unable to pay, the lease expires, and the tenant must leave since there is no longer a lease in place. Most of the time, a month to month lease can set up terms that allow the tenant to stay for extended periods of time. You can put clauses in the contract that limit rental increases per month or by year. The cost of eviction and loss of rental income can be avoided this way. Finding a good, long term tenant is not the easiest thing to do in today's environment.

When it comes to economics anything that tampers with supply and demand in the slightest is generally not a good thing. Renters should have reasonable guarantees their payments provide certain things. Landlords should also have some protections. I have 11 properties and I price them right keeping them maintained. 5 of those properties require the lessie to have a cat declawed and indoor only. I use a standard get anywhere lease. I've yet to have a problem. Knocking on wood here.

There are already tons of interferences with "supply and demand" and the free market when it comes to development and usage of private real estate: general land use plans, zoning, building permits, variances, etc. Adding rent controls to the mix does not take a pristine free market and make it socialistic. It takes an already socialistic environment and simply begins to balance things a little.

If we set aside rent control for a moment, why not think of other creative ways to balance things for renters. I am not a renter but I think a tax deduction, analogous to the mortgage interest deduction (and deduction for local real estate tax), would be a good start for balancing the incentives of buying vs. renting. A couple states already have a modest deduction along these lines on the state income tax form.

It is amazing how angry the non-renters tend to become when you mention this proposal. Can't imagine why, except they are upset they got a mortgage instead of remaining as renters?

You all should have sold a 2 years ago and let some other suckers deal with the tenants.
Good luck now.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
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