By Robert L. Cain

Pew Research and the US Census Bureau say “more U.S. households are headed by renters than at any point since 1965.”  In addition, vacancy rates in many parts of the country are almost non-existent, with under 4 percent in many cities on the West Coast. That information, when combined with the report from Freddie Mac about the marked decrease in low-income housing is welcome news for rental owners and worrisome news for business owners.  Here’s why.

Rental Owners

Renter demographics show that some 65 percent of people under 35 years old are renting.  In the 35-44 year old age group it is four in 10 people, 41 percent.  Even the 45 to 64 year old age group shows more than one in four (28 percent) now renting.  Add to that the shortage of rental housing, and we have the makings of a huge opportunity for turning bigger profits on rental properties.  Multifamily Executive magazine in Sept. 2017 pointed out “Freddie Mac recently projected that an estimated 440,000 new multifamily units may be needed every year to meet the pent-up demand for renters nationwide across all demographics, from millennials to baby boomers.”  It’s simple supply and demand, fewer properties available to rent mean higher rents.

Another interesting fact, and one that is also of interest to business owners is the educational level of renters.  Pew Research points out that 52 percent of people with less than a high school education rent, 38 percent of high school graduates and people with some college rent, while only 29 percent of college graduates do.  I’ll discuss why that is important to business owners in a minute.

Rental owners can now take advantage of the situation by raising both rents and standards.  How high a rent can you charge and not price yourself out of the market?  How high can you set your standards so you get to select from top applicants and not have to cull people who should not be able to rent a Barbie playhouse?

We owe it to  our investments and ourselves to get the highest rents we can and rent to the highest caliber tenants we can.  Of course, the rents a property can command and the standards that are appropriate vary by property.  The only way to establish market rents is by a rent survey.  The only way to establish higher standards is to look at the demographics of top tenants and raise standards to their level.  How many years on the job?  How long at the previous residence?  How good is his or her credit score?  Naturally, our ability to verify all information on the rental application is essential, as always.

Business Owners

Many business owners complain that there is a shortage of acceptable employees and that they end up hiring people they wouldn’t hire when the unemployment rate was higher.  But higher rents and lower vacancy rates can exacerbate the problem.  Lately there has been considerable press about the number of working people who simply can’t afford the rents in their area and end up living in RVs and friends’ basements.  Lack of affordable housing can be a major problem to employers.  After all, you can’t pay someone without even a high school education the approximately $60 an hour it would take to afford a $3,000 a month apartment.  You’re lucky if you can pay one-quarter that.

In many cities that is not enough total monthly pay to cover the rent.  A $15 an hour employee makes only a little over $2,600 a month gross.  Then there’s having to eat and get to work, both kind of essential for performing well on the job.

There’s more to be concerned with.  Apartment List recently did a study where it estimated that 3.3 percent of renters had been evicted sometime or other and 2.4 percent from their recent residence.  Considering that there are about 118 million renters in the US, that means 3.7 million renters have been affected by eviction.

Add to that Apartment List’s findings that almost one in five renters (18 percent) have had trouble paying the rent, either not paying it or paying partial rent, in the last three months.

As we would expect, people earning less than $30,000 a year, or less than $15 an hour, 11 percent of them had been threatened with eviction, with 3.4 percent of them kicked out of their most recent residence.  In fact, going along with that is the fact that people with only a high school education are three times as likely to receive an eviction threat as those who hold a bachelor’s degree.

Interestingly, the city with the highest eviction rate is Memphis, Tenn., where the average rent is $929 a month, with a rate of 6.1 percent.  Just as interesting is the fact that the most expensive cities, San Jose, San Francisco, Boston, and New York had the lowest eviction rates.

Evictions can make keeping low-income employees problematic.  It is important to check if applicants have been evicted and if they have problems paying the rent.  Asking about trouble paying the rent in job interviews and references from landlords is appropriate in addition to requiring satisfactory credit reports.  An evicted employee can have a problem getting to work and an additional problem of being able to concentrate effectively while at work because of a uncertain financial situation.

So while rental owners are in good shape because they can raise the rent and the rental standards, business owners can have a problematic situation especially with low wage employees.  Careful screening is even more important.