Getting A Grip On Profit In Rental Housing

3 older apartment buildings with different coloured facades
NYC apartment buildings. Renters, owners see a place to live. Investors see buy/sell housing flips for juicy profit.

Imagine for a moment that you own a home and you’ve lived there for 10 years. In that time, the value of your home has gone up. Depending on where you live, the value may have gone up quite a lot.

Based on the new value, you could increase the amount of your mortgage (or take one out if you don’t have one), and use the value of your home to do repairs, or buy another home, or pay for your children’s education, etc. At an individual level, this all makes sense, as long as the mortgage payments are manageable and property values continue to climb.

It seems reasonable enough at an individual level. What happens on a larger scale with rental properties? A new study by researchers from LISC (the Local Initiatives Support Corporation), New School University and UNHP (the University Neighborhood Housing Program) has been able to investigate this question by looking at multifamily properties in New York.

At this scale, the story turns from benign to nasty. When the value of buildings go up and building owners take out larger mortgages, sitting tenants experience substantial rent hikes and evictions. Building maintenance declines. These trends are more prevalent in districts experiencing gentrification and where sitting tenants have low incomes or are people of colour.

The researchers were also able to look at what happened in buildings with non-profit owners. Here a different picture emerges. When owners refinanced the property, building conditions improved. As well, there were fewer evictions in buildings owned by non-profits.

Based on these findings, the report recommends a range of actions to improve housing stability and quality in rental buildings. For example, the report recommends legislation and funding to enable non-profit housing providers to acquire multifamily buildings. It also recommends strengthening protections for tenants, including rent regulation and access to counsel in eviction proceedings. What about offering tenants first right to purchase?

UNHP had the foresight in 2003 to begin collecting the data that was used for this analysis. The results are specific to New York. They substantiate patterns identified by housing activists in New York and other cities with multifamily housing. Local replication of the research may not be possible. That said, the recommendations are worthy of consideration in other cities.

The report is published at LISC: Gambling with Homes, or Investing in Communities