Real estate property management companies and landlords face an ever-growing number of complicated regulations to grasp and navigate in 2020 and beyond. Expect a continuation of housing regulatory trends that have already impacted the property management industry. Many regulations focus on establishing more housing to keep up with a steadily increasing demand; others seek to create a buffer for tenants in increasingly expensive rental markets, while still others help rental property owners protect their investments.

Regardless of whether these new regulations impact property managers directly or indirectly, the national focus on housing-related issues means you’ll need a comprehensive understanding of what they mean for your business and the property owner’s profitability. While they won’t immediately affect property managers in every state, they’re worth keeping an eye on as other states push similar initiatives.

Upzoning: A Path to More Housing Development

Upzoning is an approach for leveraging regulatory powers to allow for higher-value (such as from industrial to residential) or more dense use (such as increasing allowable Federal Acquisition Regulation (FAR)). Up-zoning is a response to the soaring demand for housing resulting in high rent prices in many cities. Basically, upzoning regulation removes old zoning laws to allow for multi-family and mixed-use development

The result is that instead of zoning for a single-family home on a single land parcel, developers can take that same parcel of land and build multiple smaller units coupled with commercial space.

Multi-unit rental housing attached to shops and businesses has become increasingly popular in areas where large corporations attract more workers than the area’s current housing inventory can accommodate ads also allows for more low-income and middle-income housing.

For instance, Minneapolis adopted new upzoning laws last year as part of a plan called Minneapolis 2040.  Effective January 1, 2020, the new plan includes regulations that address multiple city planning issues and allow for the construction of multi-family and multi-purpose properties within the city and along primary transit routes.

Likewise, Seattle’s Mandatory Housing Affordability Act, adopted in 2019, allows for high-density residential and commercial areas to address both affordable housing and climate change issues.

Major cities like New York and Washington DC have also been experimenting with new zoning laws with mixed results, and major cities in California are starting to consider ways to use upzoning to tackle their housing pinches.

What Real Estate Property Management Companies Need to Know

The impact of upzoning on the property management industry is varied but overall it creates new opportunities for experienced property managers. The potential for relaxed zoning laws and a large number of new rental units to stimulate development could increase demand for property managers, especially in the multi-family sector.

Reexamining Rent Regulations

Over the past 10 years, real estate property management companies saw both property and rent prices rise to record highs nationwide. After years of rent regulations being set aside, several states are reintroducing them, which raises new questions for residents, property owners, and property managers.

For example:

▪   Oregon became the first to pass statewide rent control in February 2019, prohibiting landlords
from raising rent prices by more than 7 percent per year.

▪   New York City passed the Housing Stability And Tenant Protections Act of 2019 in June
2019, which addresses hefty rent increases, evictions as retaliation for filing complaints
against landlords, exorbitant late fees, and other protective measures for residents.

▪   Last year, California created the Tenant Protection Act of 2019, establishing a rent cap and
restricting rent increases for cities that did not already have one in place.

Rent rate regulation is a complex subject, further complicated by the increasing politicization of housing as government leaders at the national level decide to intervene.

What Real Estate Property Management Companies Need to Know

States like New York and  California are often pacesetters for legislative change nationwide, at state and federal levels. Policy changes among these primary rental markets mean property managers across the country should expect other cities and states to start considering similar changes.

Only part of the affordability equation can be resolved through rent control regulations, as it fails to take into account the already high (and rising) costs of owning and maintaining a rental property. Property owners may find their profit margins impacted by rent control regulations.

Property managers may need to look at modifying the services and amenities provided to residents and owners. Property managers will find that opportunity here lies with optimization and necessitates a comprehensive knowledge of the local rental market to best advise property owners on how to set their rent prices and fees. Property managers who utilize technology to keep their business operations running smoothly while creating an excellent tenant experience and prioritizing services like online payments and convenient inter-community communication portals will fare best with regulatory changes.

New Definition of ‘Employee’

In September 2019, the California Assembly Bill changed the legal definition of “employee.” As of January 1, 2020, a person cannot be classified as an independent contractor in California if:

  • The employer controls or directs the person’s course of work
  • The work performed is not outside of the employer’s primary business
  • The worker does not normally or independently perform that work for others

Massachusetts passed a similar law in 1990 and amended it in 2004.

California’s bill was passed to protect workers in the growing gig economy by demanding companies such as Uber and Grubhub reclassify workers not currently protected by salary and benefits laws.

What Real Estate Property Management Companies Need to Know

For most property managers, the employee reclassification law doesn’t apply but it’s something you should be aware of, particularly in Massachusetts and California. While the law doesn’t directly affect housing, it doe affect the types of maintenance workers and vendors that property managers hire for services on their properties. Under the new law landscapers, maintenance workers, housekeepers and other independent workers who are not incorporated as a business may be considered employees.

Military Tenant Bill of Rights

In December 2019, the National Defense Authorization Act passed, defining the full budget of the Department of Defense and summarizing a tenant bill of rights for military personnel and their families living in housing that is managed privately,

The act establishes standards for rental units and provides tenants in the armed forces with a system for resolving disputes. It also establishes a Chief Housing Officer position to supervise these standards and make sure that private management companies are complying with them.

What Real Estate Property Management Companies Need to Know

The National Defense Authorization Act addresses a very specific segment of the renter population which, in many cases, comes with unique needs and issues compared with other segments of the rental market. While property managers should familiarize themselves with the circumstances that triggered a need for the new regulation, let’s just say that it provides property managers with a clear outline of standards to follow for military housing, as well as guidelines for settling disputes with residents before they result in arbitration or litigation. Property managers in major military communities like Virginia Beach, San Diego, and Charleston should be aware of these standards.

Short-Term Rental Regulations

Since launching its short-term rental services in 2008, Airbnb has become a popular alternative to hotels in large cities and small towns worldwide. They’ve also brought challenges to property managers and their long-term residents.

Cities nationwide have responded by passing short-term rental laws; New York, for example, passed a law back in 2011 that prohibits the rental of an entire apartment as well as the advertisement of that rental. The law also limits the number of paying guests to two.

Since then, Boston, Los Angeles, Seattle, and Washington DC all passed their own laws requiring property owners to obtain a license to rent on sites like Airbnb, and in Seattle, they must register as a business. Restrictions have also been placed on the number of guests and the number of days in a year a property can be rented out.

What Real Estate Property Management Companies Need to Know

The positives and negatives of short-term rentals are the source of heated debate from all sides, and the amounts of fees and penalties in place from one city to the next vary substantially. Moreover, the impact of short-term rentals on a property manager’s community can be both good and bad, whether they profit from heightened tourism or deal with disruption by a consistent stream of visitors.

Whether or not your property management company currently handles short-term rentals, it’s advisable to stay abreast of these ongoing discussions to be prepared to offer the best advice to property owners. Property managers serve as the go-to resource that property owners turn to on compliance matters regarding state and national regulations.

Looking Towards the Future

Staying abreast of changing state and local regulations, not only those that directly affect housing, can help property managers stay on top of changes that may their business.

More importantly, real estate property management companies should consider how these laws could impact their residents and property owners since they connect the two. A solid understanding of new housing laws and regulations will help property management companies build enduring relationships with property owners and tenants that benefit everyone.