The potential for an economic downturn has not dampened rental housing industry executives’ spirit or outlook. Part one focuses on inflation and costs, as well as workforce issues.
The rental housing industry has gracefully adapted and evolved during the current economic climate and global atmosphere. Nearly three years ago, the world came to a halt, causing many, not just multifamily businesses and professionals, to re-imagine their lives through a different lens. This wave of change has affected the rental housing industry tremendously, ranging from supply and demand implications to technology implementation to workforce shortages.
Some of the impacts seen on the industry have caused owners, management companies, developers and others to quickly find solutions to continue providing quality customer service and care to residents.
With these challenges comes solutions—some have gone away while others have stayed—like self-guided touring, online rent payments, other new technologies, purpose-built home offices for the growing number of work-from-home residents and new portfolio diversification.
Here’s what rental housing industry professionals are looking forward to this year, and what they wish they knew last year.
There have been many challenges during the past three years, but depending on who’s asked, each hindrance can differ—as can each solution. Several of the overarching issues facing the rental housing industry are well-documented, such as staffing shortages, interest rate increases and inflation. Other potential setbacks in 2023 include rising insurance rates, an increase in taxes as well as legislation that can influence operations, e.g., rent control.
“We are still seeing challenges in the workforce,” says Lance Goss, Senior Vice President, HHHunt Apartment Living. “Low unemployment coupled with all of the new multifamily communities coming online has created a tight job pool. We are also seeing regular increases in goods and services driving our expenses up, and we are seeing rent rates cool from previous years. All of this will create challenges for the multifamily industry.”
Inflation and Costs
The U.S. Bureau of Labor Statistics reported the Consumer Price Index increased 0.4% in October 2022 from the previous month, putting inflation at 7.7% year-over-year.
Costs are not only up for consumers, businesses and the rental housing industry have witnessed cost increases as well. One of the simplest strategies for easing cost increases is to do what consumers do: Shop around.
“We do multiple bids for services to try and lower costs,” says Bonnie Smetzer, CPM, HCCP, Executive Vice President with Asset Living. “We still prefer to use our great supplier relationships but have found it helpful to take competitive bids and use that to negotiate our current services where we are satisfied.”
Curt Knabe, CFO, Realty Center Management, Inc. says, “We continue to shop for the best deals, and we really rely on our supplier partners to assist us. At the end of the day though, we are just trying to make super-smart purchasing decisions.”
Some companies have even had to alter their operations to keep pace. “We started a major supply chain initiative that we continue to grow where we are pooling our project component buys like appliances, windows, HVAC, cabinets, etc. and sourcing them more directly using an online application for procurement vs. the traditional supplier distributor model,” says Alliance Residential President/COO Jay Hiemenz. “Not only have we demonstrated savings, but we’ve also increased our probability of procuring materials on a timely basis by securing these preferred relationships and tying the tech into our project scheduling software.”
Peter DiCorpo, Co-Founder and COO, Brook Farm Group, says, “We are underwriting our developments to factor in the current economic environment. This means accounting for higher annual operating expense increases and trying to determine which deals really make sense today. We are also letting some deals fall to the wayside to focus on the ones that have a higher potential for success.”
Ronda Puryear, President, Management Services Corporation and 2023 National Apartment Association Chair of the Board, has witnessed rising costs in services, equipment and payroll, among other items on the operations side. “In the development area, everyone has experienced the soaring price of multifamily real estate, pricing many companies out of the market,” she says.
The cost of land has been a major factor in rental housing, some companies facing prices that have doubled.
“In Florida, where we have a robust development pipeline, construction costs have increased 50% over the last three years and land prices for new apartments have more than doubled in the same time frame,” says Smetzer. “I wish I had known apartment land prices would double. I would have purchased apartment land!”
Making the decision on where to upgrade communities is also top of mind with increased costs.
At LUMA Residential, President Ian Mattingly says they are spending money wisely and making those difficult decisions. “As a percentage, we have seen the biggest cost increases in appliances and hardware, with lumber and other building materials not far behind. As a result, we are doing fewer appliance upgrades and focusing more on countertops and other value adds in our renovations. Overall, we’re trying to balance the rent premiums we can get with the new cost inputs related to unit upgrades.”
Many in the industry have been affected by some sort of shortage in labor, whether at their own firm or with business partners. Mattingly says that while LUMA Residential is feeling the impact of operating with 7% to 10% fewer staff members compared to the pre-pandemic levels (on par with industry experience), their maintenance employees have half the average tenure than before the pandemic.
“Finding maintenance technicians in our industry is so difficult, and so important to what we do every day,” says Don Brunner, President and CEO of BRG Realty Group, and Immediate Past Chair of NAA’s Board. “Satisfaction of our residents is tied to the service provided, so finding those technicians is so key.”
The search for quality employees has led to changes in hiring, including offering remote or hybrid work and increasing starting pay.
“There was a point in 2022 where we had more job openings than we have ever had as a company,” says Knabe. “We are trying to compete with everyone else in finding good people. Pay rates have increased, employee referral bonuses, starting bonuses, anything we can do to compete we are trying.”
Puryear says this isn’t a new trend but picked up during the pandemic. “Employee decisions to stay at home, relocate closer to family, try a new field or retire early, all decisions greatly impacted our labor pool in various positions” she says. “The most impacted area has been that of skilled and entry-level maintenance employees; a trend that started even before the pandemic.” Solutions from Puryear include increased salaries and annual bonuses as well as different recruitment tactics.
“We are handling [staffing issues] by regularly reviewing and adding to our benefits for team members,” says Jamin Harkness, President, The Life Properties. “Our starting pay has certainly gone up and we provide monthly bonuses for goal achievements, keeping team members engaged and striving for their goal regularly with a monthly bonus payout rather than for a quarterly bonus.”
John Foresi, CEO of Venterra Realty, has dealt with employment candidates “ghosting” the company—not communicating or showing up for an interview—yet they have remained fully staffed. “A key element of that success has been adjusting our pay levels, getting our research and analytics teams involved with HR to make sure that we are competitive in the marketplace… Recognizing the cost-of-living challenges that everyone has faced this year, we implemented a one-time, additional bonus across the organization this summer, which had a measurable, positive impact on employee retention and job satisfaction.”
Michael Miller is Managing Editor for NAA.