"Down Renting" reducing the supply of affordable rentals in Worcester
This is a wonderful article shared with me by a colleague yesterday.
Link to the article: Google Document
Key Takeaways
Here are two big takeaways from the article:
1. Maximizing Rental Income with AI
Artificial Intelligence and huge amounts of data can help landlords maximize rental income. The software in question, "Real Page," analyzes vast amounts of data to assist property owners in determining the optimal rents they can charge tenants. The key is to "Trust the Data." People often struggle to set higher rents due to their inherent niceness, while computers can make more objective decisions.
They realized that you could achieve seemingly contradictory outcomes:
Higher Vacancy
Higher Rents
Higher NOI with less effort
2. Down Renting Trends
People with higher incomes are "down renting," meaning they pay less for rent than they can afford. This aligns with the belief that just because someone makes $100k, they shouldn't necessarily spend 30% of their income on rent. Instead, they might consider getting a roommate or two to reduce costs.
This trend is contributing to rising rents in Worcester. For instance, two young professionals earning $60k each, with a combined household income of $120k, could afford to rent for $3000/month at 30% of their income. However, if they are renting a 3-bedroom unit in Worcester for $1800 a month, the question arises: are they "taking away a lower-priced unit from a poorer family?"
Both of these factors influence rental prices, but in Worcester, the second trend appears to have a more significant impact on the local market. Young people are delaying home purchases and actively seeking lower rents to save for their down payments.
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