The process of renovating groups of low-value properties into higher-value properties is known as gentrification. As older urban neighborhoods decline, they often become less desirable to buyers and result in lower property values. Through the process of gentrification, these neighborhoods experience a renewal of more affluent homeowners and renters, sometimes rapidly changing the composition of an area. While gentrification is a controversial process, it is also difficult to stop once underway. For this reason, adapting to the changes is usually the best business strategy for landlords.
From a property management standpoint, gentrification presents a unique set of challenges. For those who own or manage rental property in a neighborhood undergoing a process of renewal, there are important things to know and critical decisions that must be made in order to reap any potential gains.
Despite a negative reputation, there is evidence that gentrification can substantially benefit both property owners as well as renters. According to two studies reported in the Time article “Gentrification: Not Ousting the Poor?” and the USA Today article “Gentrification: a Boost for Everyone,” these benefits begin with filling existing vacancies with more affluent residents, which raises the area’s desirability, which in turn tends to increase property values.
The challenge for property managers is keeping pace with both the physical as well as the financial changes that result. As rundown homes in the neighborhood are renovated, it is important to carefully assess the condition of your own rental properties by comparison. Because no two gentrifying areas are alike, market conditions can change gradually or quickly. The challenge is to determine whether and how much to upgrade your rental properties to keep pace with these changes. Remodeling is a significant investment in time and money, but as a report from Williams College called “Why is Gentrification a Problem?” points out, the costs are often reclaimed through charging a higher rent.
Whether you opt for an extensive remodel or just a few cosmetic upgrades, carefully assessing the market is critical to determining proper rental rates. Newly remodeled rental homes typically have higher rates, but simply relying on the condition of neighboring properties to pull the rates up for the whole area does not always work. According to the Washington Post article “Five Myths About Gentrification,” a popular myth about gentrification is that it will attract new and better amenities, like stores and other services. But such changes rarely happen unless prompted by activists and policymakers who work to shape the market to their own advantage.
There are other costs involved with gentrification, especially in regards to property taxes. As new and more people move into an area, taxes may increase as a result of this renewal. New residents typically prompt an increase in services like police and fire, which are funded by local property taxes. While a change in taxes may not occur overnight, good property management requires staying ahead of increases by planning accordingly. To maintain profitability, it is important for landlords to become strategic participants in the gentrification process.
Perhaps the most direct impact of gentrification on property management is the need it brings to manage tenant anxieties and expectations. Long-time residents of a neighborhood may be strongly opposed to the changes, sparking hostility and discrimination. Tenants may start to worry that their rent will increase, with or without any property improvements. For property managers, success depends on ensuring that incoming renters feel safe in their rental homes and that they can live peacefully alongside neighborhood residents with different values and backgrounds.
While gentrification impacts property management in many ways, the ability to expertly field the complaints and concerns of tenants in a gentrifying market is critical. Tenants in these markets will need more attention than those in rental homes in stable areas, and extra attention to tenant satisfaction is required. At Real Property Management, we understand how important tenant satisfaction is to successful rental property management. We know that good tenant relations are critical to maintaining profitability and protecting valuable real estate investments. Our professionals work with property owners to assess market conditions, recommend improvements, and keep each property competitive and earning up to their potential in every neighborhood.