If small landlords in King County are selling their rentals, should we care?

If a hot market combined with regulations is driving mom and pop landlords to sell, there may be little we can or should do about it.

a single family home

Should governments make it a goal to maintain a thriving and happy class of "mom and pop" landlords? (AP Photo/Elaine Thompson)

In my last two columns, I’ve argued against the claim that renter protections reduce the rental housing supply and made the case for applying these laws to small landlords as well as large ones. But a counterpoint ran through both pieces: landlords, especially small landlords, saying they’ve sold or plan to sell their rental homes because of heightened regulation.

I’m skeptical that renter protection laws passed in recent years are driving sales to any substantial extent, but for this column I’m going to assume it’s true and ask the question: Should we care? Should it be a policy goal to maintain a thriving and happy class of “mom and pop” landlords? And what options are available to policymakers to shape this landscape? [Disclosure: I have been personally involved in advocating for increased rental protections through the Transit Riders Union and the Stay Housed Stay Healthy coalition.]

If the ranks of small landlords are shrinking, there are also larger market forces at work.

“It’s not a mom and pop industry [anymore],” says Kraig Peck, who has owned two rental homes in Bothell for several decades. “Current mom and pop landlords bought their houses at least 20 years ago, when it was affordable to buy a rental house, or some inherited them from their parents.”

This is the third in a series on the rental housing market. Read Parts 1 and 2.

The value of those homes has ballooned over the past few decades, turning many mom and pop landlords into millionaires (even those with modest incomes), while making it impossible for the vast majority of renters in the Seattle area today to become homeowners, let alone landlords.

“No one is going into that business now,” says Peck. In many cases, when mom and pop landlords retire or die, they or their children are putting those properties on the market.

Peck shares my skepticism about new laws driving sales, and he supports the renter protections recently adopted by the King County Council. “There’s nothing in that legislation that harms the interests of any property owner,” he says. “It protects tenants who need stability and certainty, or they are second-class citizens.”

Others, to be sure, strongly disagree. It’s not difficult to imagine how an extreme seller’s market could combine with laws that increase the real or perceived risk for small landlords to tip their calculus toward cashing out earlier than they otherwise might.

“Make no mistake, the huge [real estate] companies like Grey Star, Lincoln [and] Starwood … are proactively going after mom and pops and offering them way over appraisal value for their properties in cash,” one reader wrote to me in response to my last column. Especially with the stresses and strains of the COVID-19 pandemic, eviction moratoriums and widespread rental debt, many are “now being easily swayed to sell their properties to the big guys.”

But if all this is true, and mom and pop landlords are a dying breed, why isn’t this showing up in the numbers? As I noted in the first column in this series, the number of renters living in single-family homes in Seattle and King County appears to have stayed relatively constant over the past decade, suggesting that single-family rental stock is not actually dwindling.

Are you a small landlord with an opinion on this debate? Write to us and share your perspective. We may publish it in a future post.

Two explanations come to mind. Perhaps the great sell-off is just now gathering steam, and it will take a couple more years to really show up in the aggregate data. (Certainly pandemic-related sales will take time to register.) Or perhaps small mom and pop landlords are being replaced by investment firms like BlackRock that are buying up single-family homes in hot markets around the country and maintaining them as rentals.

If the first explanation is correct, maybe we really should be worried, along with Cory Brewer, that lower-income families too large for a two-bedroom apartment will soon be left with fewer rental options. If the second explanation is correct, maybe we should be concerned that a shift toward corporate landlordism will mean worse conditions for renters. And in both cases, maybe we should worry about the mom and pop landlords themselves, who are deciding to sell when they would prefer not to.

“I'm an aging artist without a lot of Social Security and rely on rental income to support myself,” another landlord wrote to me. Many low- to moderate-income landlords who acquired their rental properties decades ago envisioned that passive revenue stream buoying up a secure retirement. If they sell a rental house now, they’ll end up with a huge pile of cash, to be sure, but it’s still an inconvenience to have to adjust your life plans.

These concerns point to larger values that governments should undoubtedly strive to realize. Everyone deserves an affordable home and housing security. Families of all sizes should be able to find housing near jobs, schools and amenities. Everyone deserves basic economic security throughout their lives, including in their old age.

What isn’t so clear is that maintaining a class of small landlords is an important or realistic way to achieve these goals.

Peri Hartman, who has rented out an accessory dwelling unit on his property in Seattle for many years, believes that small landlords play an important role in the urban fabric.

“They generally provide more small-scale housing, making it possible for tenants who don't want to live in a large apartment block to find an [accessory dwelling unit] or small apartment building,” he says. “The rent, in turn, allows retired people or lower-income people to own a home in the city.”

Hartman doesn’t think small landlords like him should be exempt from renter protections. But, he says, “there does need to be something. My feeling is that the tenant should be able to get some level of subsidy to help pay for the rent, depending on need.” Or maybe small landlords could “get some sort of tax benefit if they rent below market rate.”

These are fine ideas. There’s already a program that provides tax breaks for multifamily buildings that maintain some income- and rent-restricted units. Expanding this to small landlords with single-family rentals is worth considering, but the state Legislature would have to do that; local governments like Seattle’s almost certainly don’t have the authority.

As for subsidies, there are plenty of Section 8 Housing Choice Voucher holders wandering around, struggling to find homes to rent. But it’s possible that a city like Seattle could create its own voucher program, specifically tied to units owned by small landlords who commit to finding lower-income renters. That’s worth exploring.

And speaking of accessory dwelling units: Facilitating the construction of new backyard cottages and other ADUs is a great way for governments to expand the ranks of small landlords while adding much-needed density in residential neighborhoods. Seattle has already done a lot on this score, and perhaps there’s more that could be done.

But beyond all that, with the housing market as it is, it’s not clear what governments can really do for small landlords — apart from carving them out from renter protection laws. I’ve already argued that this is a bad idea in general, but it’s worth taking a closer look at two laws that have inspired the most vehement objections: Seattle’s 2016 “first-in-time” law, which requires landlords to transparently publicize screening criteria and to select the first qualified applicant; and Seattle’s 2017 Fair Chance Housing Ordinance, which prohibits landlords from using criminal background checks. (Both laws have overcome legal challenges.)

Both of these laws are intended to reduce potential for discrimination in the screening process. In a landlord’s market, where renters compete fiercely for available units, why even consider someone with a criminal conviction if you don’t have to? Small landlords are especially likely to jettison formal procedures and go with their gut, selecting candidates who they feel will be the most compliant and easy to work with. That can mean passing over applicants based on race, disability, source of income (such as being a Section 8 voucher holder) or other characteristics without having to state or even being aware that’s what they’re doing.

Without a transparent and fair process, even qualified renters can search for months, spending hundreds, sometimes even thousands of dollars on screening fees, and facing rejection again and again. People with criminal records can find themselves locked out of housing altogether.

Landlords objected to these anti-discrimination policies on two different grounds. In the 2018 study I mentioned in my last column, where 40% of landlords who responded to a survey said they had sold or intended to sell because of Seattle’s laws, these two were named most frequently, by about a third of respondents, as major reasons. These rules pile on so much risk of being stuck dealing with irresponsible or even dangerous tenants, the argument goes, landlords are choosing to get out of the business instead.

A recently published study on these same two laws, by Anna Reosti, a research professor at the American Bar Foundation, showcases a second argument. Landlords and their representatives, interviewed prior to the laws’ implementation, said they’d be ineffective. To reduce risk, landlords would change where they advertise their openings. They would raise credit score requirements, thereby indirectly excluding more “negatively credentialed” applicants. In various subtle ways they would retain their discretion.

In sum, writes Reosti in her study, “private rental housing providers enjoy a host of options for modifying, or at least appearing to modify, their decision-making procedures without fundamentally changing the outcomes of those decisions.” (Some small landlords also said that the first-in-time law would be counterproductive because it would prevent them from taking a chance on less qualified “underdog” applicants.)

Either one of these arguments by itself is alarming. But together they have a strange effect. How can these laws be both useless because they’re so easy to skirt around, and so onerous and risk-inducing that landlords are deciding to sell their properties en masse rather than comply? Something doesn’t add up.

I promised to suppress my skepticism, but this is where that gets tough. Maybe it’s because I’m one of those renters who has no hope of ever being able to afford a home in the Seattle area. But in these studies and in some of the angry emails I get from small landlords I detect a strong current of frantic NIMBY rage coming through.

I don’t know how effective these two laws will ultimately prove at reducing discrimination and broadening access to housing. No one does. They are pathbreaking policies, attempting to reshape private rental markets in the context of an acute housing and homelessness crisis. The city of Seattle and academic researchers should continue studying these laws’ impacts on renters, landlords and the rental housing market, as well as more diffuse social outcomes like de-stigmatizing having a criminal record. But in the meantime, it makes a lot of sense to continue writing policy to protect the most marginalized renters.

If fair screening mandates and other renter protection laws really are conspiring with market forces to drive mom and pops out of the landlord business, there might just not be a whole lot governments can or should do about it. But there's plenty governments can do to make sure ample affordable homes are available for families of all incomes and all sizes, and that everyone enjoys housing stability and economic security throughout their lives. Next week I’ll take a look.

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About the Authors & Contributors

Katie Wilson

Katie Wilson

Katie Wilson, a contributing columnist, is the General Secretary of the Transit Riders Union.