The Unsustainable Squeeze: Reclaiming Control of Utility Costs in an Era of Rising Prices

Posted by Livable Content Team on Jan 29, 2024 1:45:31 PM

Utilities Concept. Word on Folder Register of Card Index. Selective Focus.For many Housing Providers, offering "utilities included" rent packages was once a competitive advantage, attracting Residents with the allure of predictable monthly costs. However, in today's economic climate, this seemingly convenient practice can quickly devolve into a financial tightrope walk. 

Nationwide, utility bills are soaring at an alarming rate, outpacing the ability of Housing Providers to adjust rents in accordance with these rising costs. That includes water, sewer and trash bills, especially in places affected by drought and aging water system infrastructure. This discrepancy is particularly acute in jurisdictions with rent control measures, leaving Housing Providers caught in a vice of escalating expenses and limited revenue streams. But there is a light at the end of that particular tunnel.

The current scenario presents a significant threat to the financial health of rental property owners. Consider the following:

  • Utility Cost Outpacing Rent Increases: According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for Electricity rose by 11.9% in 2023, while natural gas prices saw an even sharper 13.1% increase. Water prices have gone up even more in some communities. Conversely, rent increases under rent control regulations often cap annual adjustments at a meager 2-3%. This stark disparity creates a scenario where Housing Providers incur an ever-growing financial burden to subsidize Resident utility usage.
  • Erosion of Profitability: When utility costs rise faster than rent, it directly eats into profits, jeopardizing the viability of operating rental properties. Housing Providers face a difficult choice: either absorb the increasing costs and suffer reduced profitability, or attempt to raise rents beyond allowable limits and risk Resident turnover and legal repercussions.
  • Inequity and Inefficiency: Including utilities in rent often creates an unfair cost distribution. Residents with more energy-intensive habits effectively subsidize those who are more conservation-minded. This lack of individual accountability discourages efficient resource consumption and fosters inequities within the rental community.

To navigate this increasingly challenging landscape, Housing Providers must consider alternative approaches to utility cost management. Two strategies have emerged as effective solutions: Ratio Utility Billing (RUBS) and submetering.

Ratio Utility Billing (RUBS): RUBS allocates utility costs to individual units based on a pre-determined formula that considers objective factors like unit size, occupancy level, and historical usage patterns. It’s especially effective for managing the costs of rising water, sewer and trash bills. 

  • Pros:
    • Cost Recovery: Allows for more equitable and accurate cost recovery compared to flat-rate utility inclusion.
    • Incentivizes Conservation: Residents become more mindful of their usage knowing it directly impacts their bill.
    • Fairness: Addresses the inequity of subsidizing high-usage Residents with lower consumption peers.
  • Cons:
    • Complexity: Implementing and maintaining a fair RUBS system requires careful planning and adherence to local regulations. Using the right RUBS billing platform is essential to making this approach work. It’s also critical to consult with your attorney as regulations and local ordinances can change quickly. 
    • Potential Disputes: Some Residents may disagree with the allocated costs, leading to potential disputes and administrative burdens. A transparent system with a Resident Portal that allows them to see exactly what they’re paying and why can head off those disputes! 

Submetering: This approach involves installing individual meters in each rental unit, providing precise real-time data on individual utility consumption. Residents are then billed directly based on their actual usage.

  • Pros:
    • Precise Cost Recovery: Offers the most accurate and direct cost recovery mechanism, eliminating any discrepancy between Housing Provider cost and Resident payment.
    • Strong Incentive for Conservation: Residents have the greatest incentive to conserve when directly responsible for their bills.
    • Transparency and Fairness: Provides total transparency in individual usage and cost allocation, reducing potential disputes.
  • Cons:
    • High Upfront Costs: Installing submeters in existing buildings can be a significant upfront investment.
    • Meter Reading and Billing: Requires additional operational and administrative responsibilities for meter reading and billing.
    • Potential Resident Pushback: Some Residents may resist submetering due to concerns about increased scrutiny and potential for higher bills.

Ultimately, the ideal solution for recovering utility costs will depend on individual circumstances, property type, and local regulations. Both RUBS and submetering offer distinct advantages and disadvantages, and thorough consideration of each option is crucial.

It is vital to remember that proactively addressing the issue of rising utility costs is essential for protecting the financial sustainability of rental properties. By embracing alternative billing models and promoting responsible resource consumption, Housing Providers can navigate the current economic climate while building a more fair and efficient rental ecosystem for themselves and their Residents.

The choice is clear: clinging to the unsustainable "utilities included" model is akin to standing on a sinking ship. By adapting and implementing effective cost-recovery strategies, Housing Providers can chart a new course towards financial stability and create a renting environment that fosters responsible resource management for all.

To help Housing Providers chart that new course, Livable has introduced Livable Pro, a DIY service that lets independent rental owners manage their properties, units, team members, Residents and billing when it’s convenient! No need to set a meeting with a Livable expert to start recovering your master-billed utilities, with no commitment and no unit minimums, ever. To learn more about it and check out a demonstration property for free, visit Livable Pro

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