In Minneapolis, there is an active discussion about rising rents, whether supply and demand affect rents, and what to do about providing enough affordable and work-force housing. Related issues — markets, incomes, land use controls, local politics and processes, public subsidy and how it’s used — are all complex. No blog post, tweet, or newspaper article can do the issues justice.

As a person who passionately believes affordable housing is a human right, I find the discussions a bit frustrating. This is largely due to the depth and diversity of my personal perspective.

I’ve been a mom-and-pop landlord in a four-unit, owner-occupied building since 1996.

My graduate work focused on affordable housing policy.

I’ve worked (and volunteered) in the world of affordable housing policy since 1997, working with both “naturally occurring” and the subsidized kind.

I’m a close observer of neighborhood, city and regional housing policy and have watched how they impact affordable housing since 1997.

My frustration also stems from my own unorthodox and solutions-focused personality. I want to solve this problem. That means we need a politically viable solution, something that meets the scale of the problem.

While no series of blog posts can capture nearly two decades of learning, I try to dig in a little deeper in this series of posts. Because my policy goal is affordable housing, I’m primarily focused on rental housing. (People who can buy a $180,000 house don’t need any more policy and subsidy support.)

I ask you to suspend belief for a few posts. Please set aside simple ideas like “more housing = cheaper rents,” or that housing is not subject to market forces, ideas like high “X” costs is what causes rising rents, ideas that landlords are out to stick it to tenants, or whatever else might be hiding in your instincts.

I hope to start a more nuanced and honest discussion about how the pieces fit together, where there’s something we can do about it, and what we might be able to do about it.

Part 1: How I Set Apartment Rents

I keep hearing people comment on the causes of rising rents in Minneapolis. Some people say luxury buildings are forcing them up, others say increasing taxes are forcing them up. Neither of them make sense to me from my perspective as a landlord. Let me tell you how I set my rents.

First, a caveat: there are many kinds of landlords. The most obvious kinds are the ones who have subsidized housing (with contracts limiting the rent they can charge) and the ones who offer market-rate housing. There are sub-groups in both categories, with big distinctions in the market-rate set. (I suggest pages 19-22 of The Space Between to learn more).

Just as there are sociable house-cats and antisocial house-cats, within the mom & pop genre of landlord we have different personalities, options, obligations, and priorities. I owner-occupy my building, and want nice neighbors. I also want to live in a nice, well-maintained house. That means charging enough rent that I have $80,000 to replace the falling-down porch once a century, $25,000 for a new roof every 25 years, and $15,000 to repaint the trim & keep the lead paint chips at bay. I aim to have enough cash on hand to cover the random $250 toilet repair or $500 dishwasher replacement.

My Standard Rent-Setting Process

When I get notice for a 3-bedroom apartment, I always use the same process to figure out what rent to advertise:

First, figure out what the market is charging for something similar. If I ask too much, I’ll have an empty apartment. I create a spreadsheet. I want to compare apples to apples, and the apartment I’m offering is not like all of the others. I don’t include parking in rent, so I adjust down ($60) when comparing to units that do. I include all utilities in rent, so I adjust up for units that do not ($40 if electric not included, $40 if heat not included). And some apartments are different in unpredictable ways — fancy or horrifically run down, cool quirky features, whatever. I head to Craigslist. I search for 3-br apartments in Uptown. 3-br apartments in Powderhorn, Longfellow, North Minneapolis, and St. Louis Park are not in the same market as my building. I limit my comparisons to buildings with similar character to my building. That means hardwood floors, wide wood trim, ~100 years old. 70’s walk-ups with sliding windows are not in the same market as my building. Neither are new (or recently rehabbed) condos. I aim for a minimum of 12 comparisons, avoiding properties that are too far away or that were posted too long ago. If I can’t get to 12, I loosen those rules to have a big enough sample size and adjust. I have the spreadsheet calculate the “adjusted rent” for each comparison. I calculate the average and the median of the rents. I look over the range of rents. Finally, I use a super-scientific method of staring at the numbers for a while, and then adjust the outcome based on my gut. THAT is the rent I’ll advertise.

Things that Influence my Gut

Most important, I have to remember that I can’t get away with charging MORE than the market. If I set my rent too high, I have no renter. It doesn’t matter if I just plopped down $80,000 for that new porch, or if my taxes went up or down.

Second, apartment sub-markets are nuanced. When I avoid 70’s walk-ups and new condos, I’m intuitively putting myself into a sub-market. It’s not better or worse, they are simply different from my house. I don’t know whether it’s the 3- or 4-star units referenced in this article on “filtering,” but I think of it as “really nice hard-wood floor with varnished trim” units.

Third, my building has some unique features some potential residents care about. Location determines the market, parking and utilities matter in the total rent, the rest matters only to a subset of people. My units are:

in a desirable neighborhood,

all utilities included,

without parking (unless you want roll-in, secure bike parking),

owner-occupied,

near great transit service, and convenient for biking

pretty and well-maintained with new kitchens.

Finally, as an owner-occupant, I want good neighbors. I share a house with them, and I’m trusting them to take care of my home. I want my rent low enough that I’ll have multiple applications. I’d like them to pay rent on time. I’d prefer people who are “grown-ups” and likely to live somewhere for a few years over recent college grad roommates who are likely to be a great neighbors for a year and then move on. If I’m lucky, they’re environmentally conscious (to keep my utility bills down), vote, are respectful of me and the other people in the house, and thoughtful when using shared space.

Long-term Choices I’ve Made

When I moved in almost 20 years ago, the house was dumpy. It wasn’t falling apart, but the dingy walls hadn’t been painted in years, the kitchens were super-cheap and falling apart, the roof needed to be replaced. I chose to fix up the units, with interesting colored paint, new kitchens, updated electric, new bathrooms, and other random improvements.

I intentionally created slightly-nicer-than-typical units because I think that will appeal to the kind of renters I want to attract. My preferred renter isn’t just focused on bottom line rent, but wants a nice place to live. The improvements allowed me to raise my rents a bit. My units have filtered up, not to the most luxurious level, but to a higher rent level than when I bought them.

So what?

The things that matter to me — low turnover and nice neighbors — are different than what matters to other owners. Other small landlords might like less hassle (whereas I like gardening with my neighbors). Bigger owners might use turnover as a maintenance tool, taking the time to make improvements. Subsidized owners might prioritize lower expenses.

For all of us though, rents are determined by what the market will bear. Set them too high? There’s a problem with the cash flow. No matter the building expenses. (Even in subsidized properties, the legally permitted rents are sometimes more than the market will bear.)

There is a floor to what I can charge without losing the house. But if rents were to drop that low, I’d first cut amenities (no more garden mentor!). Then I’d minimize maintenance, ditching the cleaning service, putting off minor repairs, waiting two more years to replace the roof. The place would would be less nice; it would filter back down.

So far, the influx of luxury apartments hasn’t come close to meeting the demand for Uptown living. That means that my rents aren’t skyrocketing, but they aren’t going down. I’ll keep using my spreadsheet, keep paying my loans, and keep the cleaning service (at least for now).

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