Corporate landlords found a new way to raise prices.
Read the original article here.
By Helaine Olen, Managing Editor
It has been more than a decade since a fringe candidate for New York City mayor famously observed, “The rent is too damn high.” The problem has only gotten worse since then — and it’s no longer just the stated rent on an apartment. Large corporate landlords are increasingly buttressing their bottom line not just with the rent they charge on a unit, but with a plethora of less-than-well-disclosed mandatory fees tenants are expected to pay. Investigative reporter Tracie McMillan recently published an exhaustive investigation into how Greystar, the largest landlord and property manager in the United States, uses the practice. She recently sat down with Economic Liberties’ Managing Editor Helaine Olen to talk about it.
This interview has been edited for length and clarity.
Who are the largest corporate landlords and what kind of footprint do they have?
Greystar is both the largest owner and manager of rental apartments in the U.S.. They own or manage one million units. They’re mostly in the major cities and in areas with large student populations.
When did all of these apartment fees begin sprouting up? Where do they come from? What’s the origin story here?
Apartment fees have been sprouting up for a while. But they’ve really become supercharged in the last decade, particularly as large-scale corporate landlords have taken over more and more of the housing stock in the U.S.. The economy of scale across a large portfolio of buildings makes junk fees much more profitable for a big landlord than for a small one.
Let me backtrack for a second. What is an apartment fee actually?
Junk fees are fees charged by landlords in addition to rent that are part of the tenant’s legal obligation to the landlord. And that’s really important. Many of the leases that we saw over the course of the Greystar story have provisions that say any money given to the landlord or the property manager from a tenant, goes to non-rent fees first and then to rent. If you are getting charged fees on top of your rent and you are having a rough month and you’re just like, “You know what? I’m going to pay my rent, but I’m going to have to press pause on electric.” It doesn’t matter. They’re going to take your rent check, put it towards pest control and electric and all these other fees first, and then you’re going to come up short on rent.
Why do we see this more with the large corporate landlords vs. mom-and-pop landlords?
Fees generate a lot more revenue for big landlords than small ones because big landlords have more units. A really good example of this is pest control fees, which typically range from $2 to $5 a month. So even if you’re pretty low income, the cost-benefit analysis of arguing over a $2 to $5-a-month fee is that most people are not going to argue about it, because it’s going to take you more time to argue with the landlord than it is to just pay it. So, if you’re somebody who has, say, a six-unit building, and you’re charging six tenants $5 a month, that’s 30 bucks a month. Is it worth the hassle of collecting it from the tenants and what it means for your relationship with them at that level? Generally, not. But if you are Greystar and you have more than one million units across the entire US, two dollars a month to every unit means $2 million more in revenue.
Do we have a sense of how much money this adds to the typical bill?
There isn’t any solid national data or study on apartment junk fees yet. The closest analysis to that comes from the Urban Institute, where they had access to data that let them look at the fees being charged by three of the biggest landlords in Colorado. And the fees charged in addition to rent generally increased the tenant obligation between 15 and 18%. Greystar raised its monthly bills by an average of nearly 20%. And that can be really significant for tenants.
And why don’t people realize this? How is this hidden from them initially?
Up until December of last year, there were no clear regulations or case law saying you absolutely have to disclose every fee. In December, the FTC settled with Greystar over allegations of unfair pricing and unfair competition because they were advertising at one price, then ultimately charging more. And now Greystar has agreed to disclose some of the mandatory fees, but not all of them.
[Before that] Greystar and other landlords would advertise units and say it’s this $1,200 a month apartment. So, you’d see the advertisement, you’d pay a few hundred dollars to apply, and only then would you start to get paperwork that would suggest there were additional costs. There wouldn’t be a clear summary anywhere. So, you’d have to page through the lease and really pull it out. For Greystar, we saw leases that were as long as 101 pages and had as many as 33 separate documents within the length of the lease. So, you get these very complicated documents with fees buried in them. And then tenants are sort of saying, “Well, it’s $1,200, then there’ll be fees on top, but I don’t have a clear sense of that. So, it’s $1,200, and I’ll figure it out later.” And then people were getting stuck.
The Greystar settlement requires the listings to disclose all fees that may be charged and to have a price for mandatory fees that will be included and to roll that into an advertised “total monthly leasing price.”
And apartments owned by outfits other than Greystar are not bound by this, correct?
Correct. So right now, the FTC is in the middle of a public rule-making process to regulate these kinds of fees.
Tell me about utility fees.
Landlords and property managers are saying these are usage-based utility fees. We can’t estimate them in advance, and we are just going to charge them on top of rent. Tenant advocates say these utility fees are a workaround to avoid rent protections.
These utility fees generally show up after two months. They don’t show up the first month or two because there’s a delay in billing. So, [for a woman I spoke to for this piece] out of nowhere her rent went from $1,600, which was the most she could afford. All of a sudden, she had another $140 that she owed. And then, when she didn’t pay that right away, then she got charged a late fee, which was $75. And then she got charged attorney fees because they said that they could take her to court. So, within the first couple months, she’s facing an extra $300.
How does private equity, big corporate ownership, which has increased in this area over the past decade, play into this?
The primary effect of private equity is that it creates a stronger impulse towards profit in the short term than you would see otherwise. So, within a private equity model, investors are looking to see serious returns within a few years. And so, it means that if that is your business and you are a landlord, you are not looking to have stable tenants that stay with you for 20 years. You are looking to charge as much money as you can for a few years. The profit incentives are just really different.
One of the things that really spoke to me in the article is that these junk fees have become so prevalent that they actually cast doubt on rent statistics collected by the federal government now. Can you elaborate on that a little bit?
Federal rent statistics are self-reported, and they are rent plus utilities. The federal statistics only include the utility fees, so they don’t include pest control. They don’t include trash. They don’t include all these fees that we’re seeing pop up. They don’t include the penalty fees that might start popping up. It suggests to me that the rent is probably a lot higher than people think.
One thing that comes up in the piece is a thing called the boiler management fee. What is that and why did you think that was so particularly egregious?
I don’t know what a boiler management fee is supposed to cover. We asked Greystar; they did not choose to respond to that question. We highlighted it in part because one of the lawsuits against Greystar highlights it and makes the argument that it shifts the cost of a basic building service, which is having a heating system, onto tenants.
Okay. And tell me a bit, what kind of lawsuits are going on against Greystar right now?
Right now, Greystar has nine potential class actions filed against it that are specifically over junk fees.
Okay. And what are they alleging effectively? What are these class action lawsuits claiming?
The junk fee cases pretty uniformly are making an argument about fair pricing and competition, and. saying that by adding on mandatory fees on top of the advertised price, Greystar is not competing fairly in the market. It’s distorting prices because they advertise one price but then mark it up later. And then, depending on the location, there are specific allegations around local tenant protections.
And are there any states or municipalities that come to mind for you that are trying to tackle this issue right now?
Junk fee regulation is emerging as a pretty significant issue. Seattle and New York City both announced in the last month efforts around regulating junk fees in rental housing. Seattle Mayor Katie Wilson has a piece of proposed legislation. Mayor Mamdani issued a report from the rental ripoff hearings that they had held around the city, which includes suggestions for future policy. And utility fees are getting banned in a few places. Alameda, California just banned them a couple of weeks ago. In Los Angeles right now, the Housing and Homelessness Committee, which is chaired by [L.A mayoral candidate] Nithya Raman, has a proposal that it’s working on around regulating the utility fees. So, there’re places around the country that are starting to tackle this, but it’s pretty early in that process.
Last thoughts?
I think there’s a degree to which this conversation around junk fees is really just a conversation about what constitutes rent. Is rent the amount of money that you pay to stay housed? Because if that’s what it is, every mandatory fee would just be included in that.
