Vesta Capital

Innovative Housing Solutions: Ending Rent Increases Through Collaboration

Vesta Blog by CEO Marc Kulick

Housing costs never seem to go down, do they? Residents are always terrified of what this year’s renewal increases will look like.

Most people believe that these consistent rent increases are caused by the never-ending greed of landlords and investors alike. Of course, for those people in the industry we know that owners and investors make very little if any of the money that comes into a property from rent.

So, where does the money go? Much like our residents, we too face never-ending increases in the form of utilities, insurance, and property taxes (never mind operating expenses like payroll, and repairs and maintenance, but those we will save for another day).

This whole cycle was on my mind a few weeks ago when I got an angry email from a resident at one of our properties. He had just received his renewal offer and wanted to know the justification from a 3% rent increase. His position was we weren’t offering to renovate his unit or make his apartment nicer and yet we were expecting more money from him.

While I didn’t tell him that our taxes and insurance combined were 45% higher than last year, I simply explained to him that this is why inflation is so insidious – because pricing increases beget more pricing increases.

It was then I thought about an idea – a roadmap for ending this cycle. That idea is a partnership between counties/cities and owners.

Public/Private Collaboration

The affordability crisis is real. To fight this, some developers partnered with counties/cities to build long term affordable housing through the LIHTC (Low Income Housing Tax Credit) program. Basically, developers could access substantial tax savings if they pledged to keep rents at “affordable levels”.

The definition of affordability was a calculation called AMI (Area Median Income). Unfortunately, in today’s world the AMI calculation really doesn’t stop owners from raising rents as maximum increases are tied to current AMI which has continued to grow at a fast pace.

While the LIHTC program isn’t as successful at curbing rental increases as it once was it does show that partnerships between local governments and developers/owners is not only possible but desired on both sides.

Creating Solutions to End Rent Increases

Clearly a more current solution is needed. For Vesta, that solution would be set limits that don’t increase on an annual basis in exchange for tax reductions that are more sustainable and accessible than the LIHTC program offers.

Real Estate Taxes are the single highest operating cost on a multi-family asset. If those were lowered (hopefully substantially) owners could turn around and give those savings right back to residents. Those same residents would then be less constrained and hurt by variations in prices ranging from the grocery store to the gas station. It would allow more people to actually save money rather than this vicious cycle of living paycheck to paycheck.

We love what we do. Owning Vesta is a great privilege for my wife and I. However, each year it gets harder and harder to even operate the properties. We end up having to raise rents on residents who aren’t getting a renovated apartment, or any meaningful increased services.

When groceries, gasoline, credit cards, vehicles, etc. all keep rising, even a 3% increase at home can be devastating. So, we will happily offer any local government that would like to partner with us the chance to make a meaningful difference and provide quality housing at truly affordable rates – now and in the future.

Picture of Marc Kulick

Marc Kulick

CEO of Vesta Capital and Vesta Realty