Guest Post: Rents Are Going Up — We Should Expect More From Landlords
This is a guest post by Eric Gutschmidt. Gutschmidt has been a landlord for over 11 years and is the owner of Gutschmidt Properties. He is also my boss.
Last month we posted a typical ad for one of our rental properties on Zillow. What wasn’t so typical? The response. Dozens of inquires within days. Following the August derecho, Cedar Rapids rental vacancies are hovering near zero percent.
Covid and the derecho have brought to light major issues in our community’s housing supply. There are not enough units — market rate or income-restricted — and there are landlords who do not take care of their properties or tenants. I think it’s time that we as a city start demanding more from our landlords and more from our city government that regulates them.
Normally year-over-year house values increase by two to three percent, in line with inflation, but in the spring house values rose by 10–20% — driven by Covid fears. The derecho caused an extreme housing shortage and, at the same time, a lot of new house repairs. Houses that earlier this year had aging roofs and outdated siding will soon have a fresh new look. This new remodeling will pull property values (and taxes) up. New construction and building material costs are also rising. 2x4’s were selling for about $2 each in early 2020. Now they sell for almost $6. Insurance premiums across the country are rising regardless of whether you personally filed a claim. Covid, the derecho, and rising building material costs point towards rent increases coming in the near future.
At Gutschmidt Properties we set our rents based on the purchase price, mortgage and cost of improvements. The cost of all of those are going up, so our newly purchased rentals will be more expensive. As property taxes and insurance premiums increase, existing rents will rise. The pressures we’re facing on costs are true for landlords throughout the Cedar Rapids metro. There is huge upward pressure on rents across the city. Costs have gone up. Supply is limited and demand is high. Landlords with historically low rents (possibly because their properties were not well maintained) will be able to charge higher rents.
If landlords are going to be increasing rents in the months and years ahead, we need to hold them to a higher standard.
It’s not in my company’s interest for me to fight for rent control, although if my fellow citizens were so inclined, I’m sure I could support some form of local rent-control movement. We worked hard to make sure our tenants hurt by the Covid economy were able to stay in their homes, something I’m very proud of. But I witnessed landlords behave with no mercy for tenants impacted by Covid starting in March, and some landlords completely abandoned their tenants after the derecho in August. If landlords are going to be increasing rents in the months and years ahead, we need to hold them to a higher standard.
Our city has long lagged behind others in Iowa in inspecting rental properties. Until recent changes to the inspection cycle, spearheaded by Councilwoman Ashley Vanorny, rentals were only inspected once every five years. This meant that bad landlords could leave properties in need of repairs, from broken smoke alarms, window screens, and appliances — to insect infestation and roof leaks — and the city would only take note every fifth year. Meanwhile, the tenants live in substandard housing. You may say that those tenants could simply move. Maybe you or I would! The most vulnerable among us often do not have that luxury. Moving into a better-maintained property is also more difficult right now with record-low vacancy. With the recent changes, rental properties will now be inspected every third year.
I believe this could go further still. Housing inspectors should be given the ability to flag properties with serious issues for annual inspection. If a landlord has peeling and chipping lead paint, they can easily spray over it and it will pass inspection. If they do it cheaply — and don’t scrape and prep the surface — the paint will be peeling again within months. More frequent inspections will make these “bandaid” repairs less cost effective, encouraging landlords to maintain their properties in better condition.
There also needs to be consistent enforcement of code violations. Inspectors should take their role as protectors of a tenants right to a safe and well maintained home seriously.
Homes Sold On Contract
Recently, while volunteering with Matthew 25, I helped out in a mobile home park where nearly every home was for sale “on contract.” The bugs — roaches, fleas and bedbugs — in some yards were worse than anything I have ever seen inside a house. Currently, contract sales of houses are not inspected like rentals are. As a result, some dubious landlords exploit this loophole and “sell houses on contract” at inflated prices, knowing that the buyer (tenant) will never actually complete the purchase.
Imagine a $50,000 house that a landlord sells on contract for $100,000. The new monthly payment is the same as rent — the seller collects the same amount of money. But the tenant never really gains equity, because the house is only worth half of the amount under contract. The landlord keeps his income flowing, but the tenant now has less protections than if he were renting. The buyer will likely never get close to owning the contracted home. This skirting of the rules is predatory. It happens too often in our city. Contract sales should be inspected like rentals to ensure they meet a minimum standard of habitability.
A few years ago, the city passed a nuisance abatement ordinance. It has no teeth. It can take six to twelve months for penalties to kick in. Tenants are afraid to call in code violations for fear of retribution. Too often, neighbors use the Nuisance Abatement program to target low-income homeowners or tenants. To my knowledge, there are only a handful of properties where it has been successfully used to punish landlords. The framework of this code is in place, but adding more teeth will give the city more power to make landlords fix up their properties more quickly.
Month to month leases are another loophole that predatory landlords can exploit. If a landlord fails to treat a bug infestation or fix a broken furnace, the tenant can file a complaint with the city’s Building Services department. But it will take the department more than a month to inspect and follow up on the issue, putting month-to-month lessors at risk. Even after inspection, landlords are given at least another month to correct the issue. If the tenant is on a month-to-month lease, the landlord can cancel that lease and throw the tenant out without having to give a reason. Predatory landlords are using this loophole to keep tenants from filing complaints. This needs to stop. Tenants should have the right to “opt in” to a longer-term lease after a period of month-to-month renting.
Revoking Landlord Licenses
The city requires landlords to be “licensed” and pay a yearly fee, but landlord licenses are rarely revoked. It is basically more like a tax. The city can add language to the landlord code that spells out circumstances under which a landlord can lose their license. This just may push the worst aggressors out of business.
Require Tenants to Get Rental Insurance
For properties owned under financing, banks require landlords to have insurance on their dwellings, but none of that covers the tenants or their possessions. If a property is damaged in a freak windstorm, for example, and water damaged most of a tenants furniture they would be out the cost of replacement. The city should require tenants to carry renters insurance, which is inexpensive, but covers things like lost/damaged property and hotels in the event that a building is rendered unlivable.
These simple initiatives seem like a small ask in comparison to the higher rents that landlords across town will soon be charging.
Eric Gutschmidt has been a landlord for 11 years and is the owner of Gutschmidt Properties.