Arbor Update

City to discuss limits on early lease renewals?

8. August 2005 • Murph
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Resurrecting a topic that was mentioned here in March, the Ann Arbor News reports that Mayor Hieftje has asked city staff to consider an ordinance to limit how early lease renewals are allowed. The new rules would address concerns that renters (particularly students) are pressured into signing lease extensions too early in existing lease, forcing hasty housing decisions.

Both the News article and previous discussion on this site note that the “pressure” put on tenants to renew early is not necessarily directly generated by landlords, but is in part a function of early lease-seekers (and willingness by landlords to cater to those potential tenants) threatening to sign housing out from under the current tenants. Unintended consequences have also been discussed, such as time limits on lease signing setting up stampede conditions on the day that leases become available.

Edit, 9 Aug, 9:30am: Added text of Madison’s lease renewal ordinance to the site library, thanks to Marc R.

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1. I was awfully skeptical of this idea back in March; I’m slightly less so now. I still think it has the potential to be done very badly, but from the point of view of trying to get students to feel more a part of their neighborhoods and take more ownership of their surroundings, I do think that alleviating the uncertainty and panic that often surrounds lease-signing is desirable. (Whether those feelings are rational or not, they do exist and do affect behavior, so simply pointing out “chill out – you’ll find housing” is not a solution.)
   
   Undergrads, by and large, have zero prior experience renting, and so are more prone to succombing to housing panic than older, more experienced tenants (Brandon points out previously that plenty of grad students look for housing in April, after accepting, and find places to live, six months after the panic period); in particular, having freshmen make housing decisions in their first semester means that they’re choosing to enter leases with people they may not know well, in a town they may not know well, which probably degrades decisionmaking and leads to problem situations later on. When people are unhappy with their housing and their housemates, they’re less likely to feel any kind of ownership or pride in their surroundings – a big complaint of neighbors of students. Both unhappiness with current housing and a fear of being bumped from current housing will lead to tenants not investing any time or energy into the situation. If you’re going to move next year anyways, why bother getting to know your neighbors or bugging the landlord to keep the place in good condition? Somebody else’s problem soon enough…
   
   So, whether it’s a matter of protecting tenants from predatory landlords or protecting tenants from each others’ mass hysteria, I can see a decent argument for doing something. I just don’t know how best to set it up.
      —Murph.    Aug. 8 '05 - 05:45PM    #
   
2. I think right now I can support a, say, three-year trial ordinance that mandates that no lease of a currently-occupied residence in the city of Ann Arbor could be signed within the first half of the current lease, except by the tenants, and no external offers or tours can be brought. eg, a September 1 to August 31 lease couldn’t be shown/signed by non-residents until Feb 1. A Jan 1 to Dec 31 lease couldn’t be signed/shown till July 1.
   
   By not setting a particular date, this avoids the “land rush” phenomenon, as leases start at different times and may be 8, 9, or 12 monthers. This would have to sunset. I might support more or something a bit different in the future, but these minimal measures sound reasonable to me so far.
      —Dale    Aug. 8 '05 - 06:40PM    #
   
3. The “first half” thing was about what I was thinking as the most feasible way to do something.
   
   I’ll ask, though, how do you think we should measure the success or failure of the trial?
   
   Most visible unintended consequence: currently vacant properties can be rented as early as people want under your suggestion, which would possibly mean that there’d be less pressure on landlords to fix up or lower rents or otherwise incentivize the properties that are currently vacant – the fact that it was undesirable last year makes it more desirable this year by merit of it being available to people who want to sign early. I haven’t decided whether this is overall good, bad, or neutral.
      —Murph.    Aug. 8 '05 - 07:00PM    #
   
4. Setting any kind of date that far back (Feb. 1) from the current situation will lead to nothing but a mass rush on that date, overwhelming most of the smaller landlords in town. If something were to be phased in over a period of years (this year: Nov. 1; next year: Dec. 1; and so on), it would work much more smoothly.
   
   I agree that the argument ‘just calm down’ is ridiculous, but not for the same reasons so far presented. The pressure coming from the students (and, therefore, carried in turn by some of the landlords) is for certain properties (i.e. those closest to campus or reknowned among the undergrad population for being the ‘cool’ places to live.) Those properties are typically very close to campus and, thus, have the highest rents (and, occasionally, the highest property taxes.) Therefore, everyone involved in the equation except the current residents wants them rented ASAP.
   
   The other pressure that does come from the landlords (often without the prodding of potential new tenants) is for the large, multi-bedroom houses. Those rent when groups of enthusiastic undergrads band together in the fall term, deciding to have the big house with everyone in it next year. When those don’t move in the fall term, they often don’t move for the rest of the year.
   
   Furthermore, setting a deadline as far back as February severely hinders the students who may be studying abroad in the winter term. They often come to us earlier than anyone else, wanting to secure their housing for the following year when they’ll be back in the States. If we make an exception for them, how many other exceptions do we make and for what cause? And who polices all of this? Will the city be willing to step in and confirm the paperwork of someone studying at Oxford next term to keep the landlord from being penalized for signing too early? Will the Apt. Assoc. be responsible for self-policing (excuse me while I snicker in derision…)?
   
   My best friend is in Madison. I’m going to ask her about how their system works.
      —Marc R.    Aug. 8 '05 - 07:42PM    #
   
5. The wonders of the Interweb… Here is the aforementioned friend’s response:
   
   Me: The topic of Madison’s ordinance came up and I was seeking real info: does it really forbid renewals until 30 days before the lease termination?
   
   Her: No where near there. It forbids renewal for leases longer than 9 months until 1/4th of the current lease is over. So, for your typical 12 month August-August lease, renewals can be required by
   November 15th. There’s also an out for landlords who want to do so
   earlier; they have to have the tenant initial a special provision
   attached to the original lease that agrees to an earlier time. And
   the whole thing doesn’t apply if there’s been an eviction filed, or
   if the tenant has signed a statement that they are not going to renew.
   
   Me: How do the landlords deal with that much traffic in sucha small space of time? Hasn’t someone tried suing on ‘restraint of trade’ grounds yet?
   
   Her: No, it was a trade-off. There was an ordinance before Sept 2004 that kept a landlord from showing until 1/3rd of the lease was up (i.e. December 15th), but they could still sign a lease with someone else (and yes, people do that all the time, mostly over the web). The new ordinance introduced a restriction on the actual signing, trading off with making it a shorter period of time.
   
   Murph, I have the actual language of the Madison ordinance, as well, if you think it would be useful to put it up on the site.
      —Marc R.    Aug. 8 '05 - 08:21PM    #
   
6. Marc – e-mail it over and I’ll stick it up on a “site library” page and link from this main post. (Same goes for other ordinances relevant to this discussion that anybody finds.)
      —Murph.    Aug. 8 '05 - 08:41PM    #
   
7. As a homeowner, I am ignorant of renting in AA. But I see a lot of signs right now advertising apartments, and quite close to campus. Why is that?
      —JennyD    Aug. 9 '05 - 06:14PM    #
   
8. JennyD – I think at least some rental units never stop advertising. We signed a lease in November for the place we moved into in May, and the same day-glo orange “for rent” signs were screwed into the front of the house when we moved in that were there in November. (And remained for about a month after, until I quietly disappeared them, leaving just the generic sign for the management company.)
   
   OTOH, there are, at any point in time, vacant units. Numbers I’ve seen for the past several years have been in the 5% to 12% range for rental residential properties in the central Ann Arbor area. This is why, as Brandon says, you can show up at any point in the year and lease an apartment, whether you want it this week or a year from now. That assumes, though, that the vacant 5% are every bit as high on your preference list as the others, and I will assert that this is not a particularly good assumption, especially for the special case of “the place you’re living right now”. I don’t want to go through the hassle of moving just because somebody else flipped out and decided to look for housing 10 months early and my landlord rented the place I’m in now out from under me.
      —Murph.    Aug. 9 '05 - 06:45PM    #
   
9. The rental market has been very soft for the past couple years. The trend seems to be that more people are doubling up (two in 1-BRs, 4 in 2-BRs, etc.) and most landlords are slashing rents as a consequence. This is the long-awaited ‘bubble burst’ of the rental market, IMO, after almost 20 years of significant rent increases.
      —Marc R.    Aug. 9 '05 - 06:45PM    #
   
10. “Slashing”? That means a 10%+ reduction to me (or any equivalent specials), which must have passed under my radar.
       —Dale    Aug. 9 '05 - 07:08PM    #
    
11. Well, it hasn’t passed under mine or my employer’s. We just rented a house for $1500/mo. that went for $2150 last year. Our 2 BRs on Geddes that had been renting for $1499 are now going for $1199 in some cases. Our 2 BRs on Fuller that were renting at $950 are now going for $750. That’s pretty significant ‘slashing’ to me, especially considering that the company’s ability to pay me and the rest of its 5 employees relies on the management fees it collects, which are directly tied to the rent. It’s also significant after two decades of nothing but rent increases. They haven’t just stopped increasing. They’re going down.
       —Marc R.    Aug. 10 '05 - 12:58AM    #
    
12. Why is this happening do you think? Is it just that the market outran itself? Is it just so expensive that people double up?
    
    I live amongst the landlords of the world, and I haven’t heard whispering at the club that things are going downhill, rentally. I’ll ask around….
    
    That is an interesting development, though. Here’s a parallel observation: Lots of fancy houses are sitting around unsold. True, some sell, and those usually are the most desirable in some way. But lesser houses that once would have fetched a pretty penny are on the market for months. What do you think?
       —JennyD    Aug. 10 '05 - 01:38AM    #
    
13. I hear from realtors that there is now a “glut” of Ann Arbor houses in the $300k-$400k range. Watching the ads, we’re seeing asking prices being reduced in a number of cases.
    
    When we go to look at houses for sale, the owners or realtors welcome us warmly, and there is not even a pretense of the usual song and dance about “better act fast, we have five offers pending.”
       —Larry Kestenbaum    Aug. 10 '05 - 02:45AM    #
    
14. Jenny said:
    “Why is this happening do you think? Is it just that the market outran itself? Is it just so expensive that people double up?”
    
    I think it’s a combination of those factors. The market did become overvalued. There’s no doubt about it. In the same way that those obsessed with perpetual growth in the overall economy are staring down a dead end street, real estate values/rent couldn’t keep ahead of reality. Remember, when the stock market imploded a few years back, everyone immediately fled with even greater fervor to real estate. Now, it’s self-correcting. Why the rental market lasted the way it did for four times as long, I have no idea. Talking to long-timers in the rental industry, they said there had been self-corrections before and they’d been waiting for this one to appear for the last decade or so.
    
    The other thing is that costs at the U continue to skyrocket. There are fewer and fewer ways to deal with the increasing cost of tuition, so students are finding new (old) ways to deal with the other essentially fixed cost: housing.
       —Marc R.    Aug. 10 '05 - 03:01AM    #
    
15. Marc,
    
    Maybe you have some figures…...do you know how many single family dwellings were converted to apartments in the last decade.
    
    Curious.
       —todd    Aug. 10 '05 - 01:56PM    #
    
16. In the last decade, and this is purely an educated hunch, I’d say the trend has been slightly in the opposite direction, with a few “urban pioneers” in the OFW and elsewhere buying apartment houses and converting them back. Only to discover, in the process, that by golly they’re now surrounded by a pack of savages! I also know of a handful of rental houses that have become owner occupied (including mine) and can’t think of any that have gone the other way. And when we were house shopping last year, quite a few of the houses that were both in our pathetic price range and in the downtown area had previously been rental properties. Other shoppers appeared to also fall into the “young couple” category, rather than that of “slumlord”. Maybe the rental companies thought it was time to get out from under some of their properties?
    
    But of course this is all circumstantial. And it doesn’t even touch on the issue of Palestine, an understanding of which is required for any discussion of Ann Arbor real estate.
       —Parking Structure Dude! (Parking Structures, Dude)    Aug. 10 '05 - 02:15PM    #
    
17. Jenny & Larry: the Ann Arbor Observer was noting this month that the median price of area home sales is flat from last year, and that median time on the market is about doubled from last year. Not such bad news from the point of view of somebody thinking of buying a house in 6-18 months…
       —Murph    Aug. 10 '05 - 02:30PM    #
    
18. I currently live in ‘The Village’ – some might say the last affordable housing in Ann Arbor. (400-some 1 to 2 bedroom co-ops/condos, selling for $60-$100k). It would seem to me in a difficult market that the lower priced houses/condos wouldn’t loose too much value, but the higher price ones would be tough to sell. This definitely isn’t the case here – nobody seem seems to be able to sell their Co-op without lopping off $10k lately, so perhaps it affects properties of all values across the board. Or perhaps everyone is renting properties from the company Marc works with at cut rate prices instead of buying!
       —Lisa    Aug. 10 '05 - 02:49PM    #
    
19. We are seeing lots of price reductions in our neighborhood, both in rental houses and apartments. Last year, many of the units didn’t rent at all, but the landlords could take the loss for a while. This year though they are cutting rent and even selling the properties. Not only have a lot of the rental homes sold, but even a few of the apartment buildings have been for sale. Last month, for the first time, we saw a rental house sell for less than they bought it for ($20,000 less!). We have seen a few of the houses go from rental to homeowner but we have also seen some houses go the other way and two houses demolished to make way for an apartment building. My guess is that as the mortgage rates go up and people with some of the more volatile mortgages get priced out of their homes, the glut of $300,000-$400,000 houses will increase. I think the last of the big flips downtown may have happened too. A few small houses in my neighborhood sold as rental properties for over $300,000 this year, but they were told they could get at least $3000/month in rent and I don’t think that is going to happen, especially since nicer houses next to them with the same number of bedrooms are sitting empty at $1400/month.
       —Juliew    Aug. 10 '05 - 08:09PM    #
    
20. Todd:
    
    Figures like those I don’t have. However, I would say that PSD is correct here. Our company has even converted a few multi-unit houses into SFHs in the past decade, because 1 BRs and efficiencies have never moved as well as larger units. Now, of course, with the pendulum swinging the other way, we may regret it.
    
    Lisa:
    
    We should be so lucky. To be honest, I think the trend may be more cultural than economicly-specific. The ‘American dream’ of owning one’s own home is becoming more and more passé, in my experience. I know it was an uphill struggle for my wife to convince me that we should do it, primarily because I didn’t want to do what we are effectively doing now: living our lives to pay a mortgage. I’ve always been one of those ‘live for today’ types and I cringe at the thought of how little we’ll be able to do for the next few years because we’re pouring so much money into housing. Of course, we could have bought somewhere cheaper than AA, but we like it here, so…
    
    One of the best pieces that satirewire ever did (origin of the famous ‘Axis of Just as Evil’) was this one about the mass delusion among Americans who think that they, and not the bank, own their own homes: http://www.satirewire.com/news/0106/dream.shtml
       —Marc R.    Aug. 10 '05 - 08:14PM    #
    
21. Great link, Marc (it was new to me). I love the “Foot and Mouth first virus unable to be spread by Microsoft Outlook.”
       —Dale    Aug. 10 '05 - 08:43PM    #
    
22. I think I’m the old lady here, so let me offer old lady observations. I’m on my third house. Owning a house has paid off handsomely. We experienced a huge run-up in the value of house #2; probably won’t have that when we sell house #3. We actually owned house #2 during a market downturn, but didn’t go anywhere and made good money after the market turned up and we sold to move here.
    
    From a purely economic point of view, owning a home is a terrific investment because it is a leveraged investment, where you only tie up a small amount of capital relative to the value of the investment, but you get the entire profit on the investment. Plus, it would cost you money to live somewhere so why not pay and get equity? There are some nifty cost-of-living calculators that show how cheap your apartment would have to be to make it a better deal than owning.
    
    There’s also the quality of life issue; could you find a place to live as nice as your house within the financial model above.
    
    The other thing about real estate…they aren’t making more of it. So always buy location, because that’s the scarce resource of real estate. McMansions on empty fields some distance from town are actually vulnerable to downturns because they a) don’t have location, and b) aren’t scarce.
    
    At least, that’s my take. Marc, enjoy your house. It will pay off in the end.
       —JennyD    Aug. 10 '05 - 08:47PM    #
    
23. (I’m supposed to be writing my dissertation proposal, but I just can’t face it today…..)
       —JennyD    Aug. 10 '05 - 08:49PM    #
    
24. All valid arguments, which my wife has used against me. Something still nags at me about it, though (especially when I think about wanting to make that trip to Africa.) I am occasionally still too much the Trotskyist, I think. But, yes, there’s no way I could be even considering putting a Japanese garden in the back of any of the apartments I’ve ever rented (not that I can afford to do that, either…)
       —Marc R.    Aug. 10 '05 - 08:56PM    #
    
25. We hesitated a long time before buying a house, because it didn’t make much sense to pay substantially more money for substantially less and worse located space.
    
    Eventually we did, though. And though technically it’s less habitable space than our old apartment, it has more if you include the basement storage area.
    
    So we’re selling it. We’ll soon find out what kind of market exists at the absolute bottom of the price range for single family detached homes on the west side of Ann Arbor.
       —Larry Kestenbaum    Aug. 10 '05 - 09:13PM    #
    
26. 2-story duplex at Main and Madison for 335k? 1400 sq ft 2-story on S. Main (half a mile south of Madison) for the same, advertised by a sign saying “3 BR 1 1/2 BATH AND GREENBELT”? Who wouldn’t jump at these bargains?
    
    I bet you can find a cozy bungalow for 250k, though.
       —Dale    Aug. 10 '05 - 09:34PM    #
    
27. Dale, I’ll give you a few other prices: 106 W. Madison sold for $250,000 last year. I know of two houses at Main and Davis (two blocks south) that sold for under $200,000 this spring (one for $188,000 and one for $167,000) and a few others that sold in the $250,000 range in the same neighborhood. The houses that sold last year to be demolished for 828 Greene sold for $180,000 and $225,000 and both of those were duplexes. Oh, and the guy in the house with the sign on South Main is, well, odd. He has lived in the house for years and is pissed that his taxes are going up so he puts little signs up to show his displeasure. He was also the one who had the target image on his door for years with the bullet holes through the heart.
       —Juliew    Aug. 10 '05 - 11:52PM    #
    
28. The downtown loft next door to me was purchased in Fall ‘02 for 365K. The owner listed it in Summer ‘04 for 450K. By last spring, the listed price had dropped to 389K. The unit sold a few weeks ago for 365K.
       —peter honeyman    Aug. 11 '05 - 12:03AM    #
    
29. Julie—you don’t need to tell me how much my house cost. Since it sold a year ago to our landlord, it was reassessed and its SEV increased 10,500. 21k under market? You decide.
       —Dale    Aug. 11 '05 - 12:49AM    #
    
30. Maybe I’m showing my roots, Julie, but were you giving those examples to illustrate the affordability of Ann Arbor at 160 dollars a square foot? What a hoot! Only in Ann Arbor.
       —Dale    Aug. 11 '05 - 12:57AM    #
    
31. (Well, $160/sqft is about half of Ann Arbor new construction prices…)
       —Murph.    Aug. 11 '05 - 01:58AM    #
    
32. Nope Dale, just saying that not everything downtown is over $300,000. That seemed to be what you were implying in post #26. It is a pet peeve of mine that a lot of people say downtown is so expensive when they want to justify buying in the ‘burbs but we paid far less for our house in a near-in neighborhood than anyone I know who bought in the suburbs.
    
    I’m not saying prices downtown are all reasonable or fair, but everything isn’t in the $300,000 to $500,000 range either.
       —Juliew    Aug. 11 '05 - 03:10AM    #