Making single-family rental homes work for communities: Part 2
Taber Andrew Bain
As the foreclosure crisis enters its seventh year, a growing number of single-family homes in the Chicago metropolitan area – some already foreclosed, some in the process of foreclosure – are being rented. Some are being rented by people who have lost their homes, while others are being rented by lenders or investors who have taken title to foreclosed properties.
Two things are evident: The demand for quality rental homes has risen sharply, and communities must adapt to rapidly increasing numbers of single-family rental homes. In addition, many investors are new to the market and lack the experience managing rental properties.
Both municipalities and investors have urgent questions about how best to manage single-family rental homes. On Jan. 30, the Chicago Metropolitan Agency for Planning’s Housing Committee, Regional Home Ownership Preservation Initiative (RHOPI), Home Ownership Preservation Initiative (HOPI), and Woodstock Institute, hosted the Single-Family Rental Housing Forum: Managing the Next Step of the Foreclosure Crisis, at the Federal Reserve Bank of Chicago. The event – and a white paper released that day by the Metropolitan Planning Council – kicked off an ongoing discussion in metropolitan Chicago to identify strategies that will ensure this growing segment of our region’s housing stock is a benefit, not a burden.
The event, made possible by The Chicago Community Trust, featured plenary speaker Alan Mallach, a national expert on shifts in housing supply and demand. His recommendations for the Chicago region, as well as information about the state of the region’s single-family rental housing market, are available in a related blog post by the Woodstock Institute.
Managing single-family rental homes: Common goals for investors and communities
Attendees at the forum participated in small group discussions in the afternoon, at which municipal staff and housing investors shared a variety of challenges associated with properly managing single-family rental homes. They began to identify common concerns and goals that can inform both investors and municipalities as they begin to develop and refine mutually beneficial strategies for managing single-family rental homes.
One useful approach to maximizing both efficiency and resources is for neighboring communities to work together across municipal boundaries to share lessons learned and innovative single-family rental manaegment strategies. Already in the region, three clusters of communities — in the south suburbs, west suburbs and northwest suburbs — are realizing the benefits of working together in the wake of foreclosures. Those with experience taking this relatively new and innovative subregional approach to housing and community development agreed that it's vital to establish open lines of communication and regular updates that bring neighborhoood-level solutions to the regional level, where everyone can learn and benefit.
Developers entering or expanding in the single-family rental home market should ask themselves whether their company is well-positioned to manage property scattered throughout multiple communities. The answer often depends on how the developer’s business is structured, as well as the criteria used to identify ideal buys for their portfolio. Developers who focus on buying foreclosures while allowing the homeowner to remain in the home as renters, for instance, generally have different criteria than a developer who is purchasing an already-vacant home. Quality developers and investors that concentrate purchases in particular municipalities not only gain management efficiencies but promote neighborhood stabilization that benefits both the local community, property values, and the long-term stability of their investments.
Regardless of geographic approach, all parties reiterated the need to partner with quality property management teams. The property manager is often the face of a development, in charge of managing the day-to-day tasks and practices that keep the development running smoothly, for the community, the residents, and the development company. Connecting management teams to education, training and uniform tenant selection procedures will contribute to a healthy and balanced development. A community-minded, well-trained property management staff is a key tool in a successful portfolio.
Incentivize the Good
Municipalities can welcome and incentivize quality developers into their towns and see them as an ally, while taking a different approach with investors who repeatedly fail to meet codes and standards after guidance is provided. Communities can motivate responsible owners by offering rewards for good management, such as building supply discounts, free smoke detectors, or less frequent inspections. For owners who repeatedly fail inspections, communities may, on the other hand, require that they take a class in property management. Communities ought to start by creating an effective regulatory system, based on compliance rather than punishment.
Creating a commonality in the language and full transparency among all parties is key to setting the stage for meaningful collaboration between the local government, real estate developers and owners, and nonprofits. Tapping multiple agencies in the community — such as the planning department and police department — to manage code enforcement builds strong relationships between law enforcement, developers, and residents. Communities can increase their knowledge of rental residences by instituting a cost-effective, web-based rental registration system that tracks a property's changes in ownership, vacancy or utilities. Attendees expressed a dream scenario in which code enforcement and vacancy surveys are conducted in a way that accurately captures the entire picture of an area’s rental market, and resources for nonprofit developers are available.
Public Private Partnerships (PPPs)
As Cook County, municipalities, and nonprofits continue to implement strategies to stabilize and open up the region's housing market, investors and real estate developers will gain the confidence to undertake redevelopment efforts in a meaningful way. With these conditions in place, the potential is growing for coordinated public and private investment, or more formal public private partnerships (PPPs). “You need that foundation, that fabric in place, working with municipalities and nonprofits,” said Andrew Geer, vice president, Enterprise Community Partners. Municipalities that offer financial support for single-family rental housing redevelopment will encourage and attract responsible investors. Nationally, the proposed Housing Trust Fund is one source that could provide communities with funds to support the production, rehabilitation, and operation of renter and owner-occupied housing.
Community Development Corporation (CDCs)
Developers are encouraged to engage with the community and establish a positive working relationship that contributes to local neighborhoods. On a local level, strengthening suburban community development corporations (CDCs) is an action participants want to see, because place-based institutions — such as banks and CDCs — are needed to help motivate responsible ownership and support local governments in code enforcement. CDCs and block clubs often monitor and advocate for community aesthetics and well-cared-for infrastructure, which helps to keep neighborhoods desirable and attractive to quality investors and residents. These groups also can highlight the positive contributions of affordable workforce housing and help existing community members welcome new additions into the fabric of their neighborhood.
Relocation trauma can send negative effects with repercussions felt throughout the family and other areas of the community. It's notable, however, that owning versus renting does not bear as heavy a burden on residents and communities as occupied versus vacant; vacant property sends a dangerous and powerful message about the direction in which a community is headed. That's why both developers and government officials agreed it's ideal to maintain occupancy during foreclosures, by finding a way to keep former homeowners in their homes while transitioning them to rental residents. The State of Illinois recently passed SB 16, which administers a foreclosure prevention counseling program.
At the forum, Cook County Commissioner Bridget Gainer was on hand to discuss a new tool that communities in Cook County will soon be able to use to overcome some of the challenges of property vacancy: the recently formed Cook County land bank. Gainer, who was recently appointed to the Board of Directors of the land bank, said the land bank is a proactive, development-oriented solution that will help remove obstacles to redevelopment, by addressing demolition, delinquent taxes, cloudy titles, and other administrative burdens. Learn more by reading a recap of a Feb. 7 MPC event on the Cook County land bank, featuring Cook County President Toni Preckwinkle, Comm. Gainer, and local and national experts on land banking.
To learn more about the state of the single-family rental home market in Chicago, download a copy of MPC’s white paper, “Managing Single-Family Rental Homes: The Next Challenge in the Foreclosure Crisis.”
MPC Research Assistant Christina Scordia authored this post.