Utilities NOT Included — Now More than Ever

Posted by Written with love by the Livable Content Team on Sep 1, 2020 6:36:00 PM

As we reported last month, rents are flattening or decreasing in many locations across the state. In San Francisco, where Livable is based, one- and two-bedroom average rents were down a shocking 11 percent in August compared to one year ago, according to data from listing site Zumper. With over 7 million in California filing jobless claims since businesses began closing in March, many are moving in with loved ones to save money or leaving the state altogether. This trend could lead to an even bigger drop in demand in the months ahead.

Obviously, demand is trending differently in different markets, but it’s safe to say that many owners may be feeling the squeeze of dropping rents and rising vacancies. It might be tempting to include utilities in the monthly rent in an effort to attract renters. We would argue that such a short-sighted plan could cost owners A LOT in the long run. 

As we all know, utilities are not fixed costs. In fact, they tend to go higher and higher over time. So, including utilities in the rent is a losing proposition in the long term. This is especially true in rent-controlled markets where owners may not unilaterally change the terms of the lease after it has begun. If utilities are included at the start of the lease, they can never be made the tenant’s responsibility no matter how long they stay in the unit. 

This long-term losing trend is compounded while people are still working, cooking and largely spending their days at home. With homeschooling a likely reality for the foreseeable future, there are more people in more homes all day long, using precious resources like water, creating more garbage and recycling, and constantly charging their devices. 

In California, year-over-year residential energy use is 15 to 20 percent higher since shelter-in-place restrictions went into effect, according to the California Public Utilities Commission. That figure came out well before an August heatwave, which broiled the West and put so much additional demand on the system that rolling blackouts returned to the state for the first time in years. In Arizona, the demand was so high that the utility service there asked residents to curtail their usage during peak hours. 

We know that you may be having difficulties finding tenants right now, but we urge you not to include utilities in the lease as a short-sighted incentive to new tenants. What seems like giving a little right now will quickly turn into a lot down the line. And, of course, if you want to learn more about how to make tenants more responsible for their usage, feel free to make an appointment to chat with us.

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