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Why rental housing is complicated.

We started big with our first blog post. There’s so much to think about – social equity, housing attainability, climate change, health, stability, ecosystems, infrastructure – that it’s overwhelming. At RentLab, we’re focusing on one thing, and that thing is rental housing.

Rental housing, you see, tends to be inefficient, unsustainable, and increasingly unaffordable. There are a couple of reasons for this. First, there’s something called a split incentive. Essentially, this means that in the typical situation where the tenant pays the utility bills, there’s no incentive for the landlord to make investments to reduce utility costs by investing in efficiency. In the less-typical situation where the landlord pays the utility bills, they have an incentive to invest in efficiency, but then tenants have no incentive to behave efficiently – by keeping the AC at a reasonable temperature, say, or keeping the windows closed when the heat is on. In other words, you can have better buildings, or you can have better behavior, but you can’t have both.

Second, there’s a lack of complete information, especially when it comes to utility and transportation costs. Tenants don’t know the full cost of living in a given property, and can be surprised (at best) or forced to divert money from critical needs or default on their rent (at worst) by excessive utility bills. Landlords don’t have a good information on how their properties are performing compared to other properties in their communities. Nobody knows what a “normal” bill is.

That means many renters pay more than they should for rental housing because so many rental housing options aren’t very efficient. That means less money for essentials like food and health care and transportation, less money for living life and having fun, and less money in local economies as those funds end up in the coffers of big utility companies. It also means more energy and water used, a bigger burden on public infrastructure, and a bigger challenge for cities focused on being more resilient, affordable, and sustainable.

Meanwhile, the number of households who rent keeps increasing, the cost of rent keeps rising, and short-term rentals like AirBnB and VRBO increasingly displace long-term rentals – at least until COVID-19, and now we just don’t know.

So what do we do? Stay tuned until next time for info on how RentLab is working to tackle this complicated but critical sector.

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