Landlords at the Margins: Exploring the Dynamics of the One To Four Unit Rental Housing Industry

RR07-15: There are 18 million units in one to four unit rental housing properties in the United States, making up half of the nation’s rental housing stock, yet this sector of the rental housing industry has been largely neglected both by researchers and by policy-makers. This housing stock is particularly important as a resource for low and moderate income households in cities and older suburbs, and in areas of high immigration, such as northern New Jersey. After an overview of the one to four unit rental inventory nationally, and a closer look at a cluster of New Jersey cities, we examine the characteristics of the owners of this stock, their investment strategies, management and tenant selection decisions, financing options, and their relationships with governmental agencies. We find that there are wide variations within the sector, particularly between three distinct housing subtypes: single family detached, single family attached, and two to four family properties. We then look more closely at the market factors affecting the condition of this stock in low income submarkets, concluding that narrow operating margins and limited tenant incomes place much of the housing in this sector significantly at risk of loss. We conclude with recommendations for public policy and further research. While we find that financing needs for this sector of the rental market appear to be adequately addressed, public policy has tended to foster an adversarial relationship between government and the owners of these units, and needs to be seriously reconsidered. We conclude that there is a need for effective policies that not only recognize the distinct features of this industry, but that explicitly focus on expanding the pool of competent and responsible owners, while providing disincentives for irresponsible and speculative owners, in order to improve both the quality and long-term stability of the stock…