After years of upward momentum, the national rental market took a definitive slide during the pandemic as many tenants bunked with family and friends to both save money and have some companionship during long shelter-in-place orders. One out of every 14 multifamily properties in the U.S. saw occupancy drop by 5 percent or more between April 2020 and April 2021, according to a study of Yardi Matrix data.
With many shared amenities closed, work-from-home options commonplace and private outdoor space a newly important amenity, property owners in expensive urban core areas experienced even larger declines. In New York City, for example, nearly a third of multifamily properties saw occupancy decline by 5 percent, according to Yardi, while nearly 10 percent saw a decline of 10 percent or more.
Hearing these frightening figures is enough to make many owners rush to offer enticements like including utilities in the rent. Yet this short-sighted thinking can set the stage for a disastrous scenario where owners end up shouldering an ever-growing burden as utility rates rise and rise. The ramifications of this ongoing loss could continue long past the current downturn.
Rates Are on the Rise
According to a survey from the U.S. Energy Information Administration, the residential electricity price nationwide will increase 1.6 percent in 2021 and 1.5 percent in 2022, continuing an upward trend. Rates have gone up six out of the last eight years, according to the EIA. The agency also shows that while commercial and industrial electricity use in 2020 was down by 12 percent and 9 percent, respectively, residential use was up 3 percent.
Nationwide, water rates are also up over the long term, with Americans paying an average of $104 per month in water and wastewater bills in 2021. That’s a 30 percent increase in less than a decade as cities contend with aging systems, fewer resources and extreme weather. Waste management costs are up as well, with haulers’ expenses rising at the same time that recyclable profits plummet.
RUBS Means Recovery
The best way to combat these ever-escalating costs is with ratio utility billing systems (RUBS), an inexpensive and easy way to make tenants financially responsible for their usage and incentivize conservation. These software solutions do not require an onerous submetering system, and easily, legally and affordably allow owners to shed much of the expense of ever-rising utility costs. (Make sure to check with a lawyer about legality in your jurisdiction. In some rent-controlled areas, RUBS can only be instituted on turnover.)
RUBS provider Livable often hits double-digit decreases in buildings that implement its best-in-field program. For example, in a fully occupied 4-unit building, water and electricity use went down 31 percent in the first year that Livable's customizable RUBS system was implemented. Use increased the following year due to COVID shelter-in-place measures, but not significantly. “With our RUBS program, building residents quickly adopt a conservation culture,” said Livable CEO Daniel Sharabi.
Livable has seen similar reductions across property sizes, with even a 300-plus building showing a 24 percent reduction in usage and an 89 percent recovery rate for the owner. In this case, that meant over $180,000 recovered in just one year of RUBS. “We always see reduced consumption after RUBS is implemented,” said Sharabi. “That’s true in buildings with four units or 400 units.”
Plus, since housing providers are able to regain close to 90 percent of their water and energy costs through RUBS, they can choose to pay a bit more of these utility bills during the current uncertain economic times. They could then pass along a “goodwill deduction” to help their tenants get back on their feet after the recent downturn. Simply seeing the costs associated with their consumption can substantially decrease utility use and increase the timeliness of leak reporting, according to Sharabi.
Property owners may not even need to offer these additional deductions for long. Recently both the job market and many rental markets have begun seeing signs of recovery. Multifamily rents rose by 1.6% year over year in April 2021, according to Yardi, marking the biggest year-over-year increase since the start of the pandemic. Even the more expensive markets, which have seen the biggest declines, are beginning to see increases again. Yardi predicts that rents will actually be higher than February 2020 levels by 2025 in San Francisco and San Jose, and by 2023 in Los Angeles and Seattle.
It’s a sign that demand will make a comeback, even in the most impacted markets. Owners simply need to stand strong in the short term and require that residents be responsible for their own utility use. “Even in a tough market, RUBS just makes sense over the long run,” Sharabi said.
Written by Emily Landes, the content director at Livable: a smart billing software company with products designed to save money, as well as the environment. To find out what Livable can do for your property.