Unemployment and under-employment impact family size and the ability of members to separate and live independently. This affects the bottom line for apartments in a couple of notable ways. An expanded family increases water usage, trash, parking concerns and general wear and tear on the rental unit. If the owner pays for any utilities directly, there is even more expense.
Obviously a random person or two is irrelevant, but when this happens within a community with frequency, the usage can be significant. No one is arguing about the state of the economy or the real estate market. It is unequivocally distressed as are the people who have been unable to find or have lost jobs. The construction industry leads the nation with an unemployment rate of 24.7%, up from 18.7% just a year ago, but this is almost good news for multifamily. Fewer buildings mean fewer competitors, and occupancy rates will rise as demand outstrips supply. That will not happen until the number of US households increases rather than the current trend of household size increasing.
How bad is it?
The Bureau of Labor Statistics announced in February 2010 that the general unemployment rate declined slightly to 9.7% from above 10%, and with the construction and services industries again leading job losses. These statistics help explain why multi-family profitability has been so affected by this particular recession:
- Long-term unemployed (those jobless for 27 weeks and over) was 6.1 million
- 4 in 10 of our unemployed have been so for over six months
- Unable to find full time work or because hours were cut, part-time workers increased from 8.3 to 8.8 million
- 2.5 million persons (referred to as ‘marginally attached’ to the labor force) were available for and looked for work in the previous 12 months but not in the last 4 – almost half a million more than a year ago
- 1.2 million of these, or 48%, were no longer seeking work and were classified as ‘discouraged’ as they did not believe there were any jobs available
- The other 1.3 million cited school or family responsibilities for dropping out, but one has to wonder how much ‘face saving’ was involved and if school registrations would support this
Of course, these official figures do not count all the business owners who went under, or the businesses that were never started or those in the shadows like the estimated 11 or 12 million illegal workers in the country, many stranded without jobs. These people are living somewhere, and families and friends sheltering them is the official explanation for the decrease in the amount of rental demand. Census figures compiled in 2006 showed the average size U.S. family was 3.2 people with almost 69% of our families homeowners. After the foreclosures and short sales of the last few years, the Federal Reserve Bank of New York found that this ownership rate had dropped to 67.3%, the lowest since 2000. Many have become renters, with more expected to do so, but out of necessity others have moved in with friends and relatives.
Vacancy Rates With these statistics it is obvious that vacancy rates are not going to correct themselves quickly, a situation which requires managers to become even more pro-active. Good managers are focusing attention on building upkeep, on-line leasing, energy efficiency, quick tenant response and ways to keep existing tenant morale high. Keeping tenants engaged and committed is now a high stakes proposition and the only effective way to combat other managers’ offers of rental incentives.
Action Marketing Plan Although the expense of expanded families can place some stress on the utilities budget, this should be viewed as a great opportunity to cultivate new tenants. If your residents have an adult child who has moved in with them – or a parent temporarily bunking with one of your families – why not solicit them as future renters?
Capitalize on Human Nature Realtors will attest that people making a local move prefer to stay within a five-mile radius of their current homes – regardless of whether they are moving up, down or laterally. Generally we like our neighborhood schools, prefer to frequent the same market, don’t want to change churches or find a new vet. We even like knowing our neighbors, no matter how flawed they may be. So before your tenants go looking, make sure your outreach is effective. Institute a policy to let current residents have first ‘dibs’ when a new unit in the building comes on the market. You may even consider some sort of ‘reward’ to show your appreciation for their loyalty.
Tenant Appreciation People don’t remember what you say, but they do remember how you make them feel. A manager can connect with residents with something as simple as remembering a detail from a previous conversation. With tenants moving in and out, keeping note cards in an organized filing system can help a manager stay on top of these niceties. In other words, no matter whether you like their attitude, sense of humor, height or kid, if they pay their rent on time and maintain their unit in a reasonable manner they earn the title of ‘great tenant’. It seems moronic to even mention it, but a big smile and a hearty ‘hello’ can go a long way towards good relations with any of us. Incidentally, there’s nothing phony about being engagingly friendly. That should be part of a manager’s job description, because even with the odd balance of power, in multifamily, tenants are business associates. There is no successful manager without successful tenant relationships.
Open Housing Policy Your tenants may be concerned about breaking the terms of a lease that specifies a two-person, one pet household and they should be. If unable to refuse a family member, however, they may feel compelled to live covertly. Some will have concerns that management will raise the rent according to lease guidelines or evict them. Others will not want to even speculate. This has become a common enough situation to warrant consideration and requires good communication. Don’t get overly aggressive, but consider what remedies make sense. You may decide to institute the extra tenant clause in your lease, ignore it or add a temporary fee to cover the cost of added utilities or some other token charge. This way you take the pressure off your existing tenant. If not, the situation can cause previously satisfied tenants to move – whether they take Uncle John with them or not. In other words, make your policy clear and rumors and lively imaginations won’t gain traction.
Added Person Lease Addendums Obviously leases are legal documents, but having your lawyer create an optional addendum that allows a ‘boomerang’ family member to temporarily live with the original lessees can be very useful. It may be a college student who has not found a job after graduation, or a parent who is laid off or a daughter moving in with a new child. This gives you control over who moves in, legitimizes the renter and makes them responsible legally as well. It also gives you the opportunity to strut your stuff. How you handle the situation can encourage the new resident to join your tenant pool or waiting list as soon as they are able. Create a waiting list – even if you don’t really need one - as a vehicle to let your resident families know when a unit is available. Avoid being intrusive but a little nudging can be helpful and motivating if well done.
Temp to Permanent Conversion If your property has vacancies and your tenants are doubling up – family or not – make it easier for them to become independent renters. You might consider anything that allows tenants to move into their own housing unit sooner, including one or all of these strategies:
- Lower your upfront security deposit
- Allow monthly installment payments of deposits and move-in fees
- Waive new security deposits for a roommate renting a new separate unit (who has deposited a portion of the security deposit on the old unit)
- Graduate rents, starting low and increasing them in established increments every six months until they reach market
- Offer a half-month or even a month of free rent
- Act like the ‘bank’ and allow a temporary tenant bunking with family to make payments towards the amount required for first and last
- Consider incorporating free wireless (no young person moves in for long without it)
- Be open to filling any vacancies on a temporary basis in any way you can.
The advantages of renting to the friends and family of your existing tenants can be numerous. As the old saying goes ‘apples don’t fall too far from the tree’. If your current tenants have integrity, follow the rules and are nice people, you probably want to cultivate their friends and family. After all, along with human nature, it is our sense of community that keeps us tied to where we live.
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