Can We Upgrade Rental Grade?
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Most of us have probably heard the term “rental grade” in reference to the finishes in an apartment or rental house. Finishes referred to in this way are usually chosen largely for low cost and/or high durability. Things like occupant health or design aesthetic tend to be secondary at best in a “rental grade” unit. This marginalization [...]
Most of us have probably heard the term “rental grade” in reference to the finishes in an apartment or rental house. Finishes referred to in this way are usually chosen largely for low cost and/or high durability. Things like occupant health or design aesthetic tend to be secondary at best in a “rental grade” unit. This marginalization of the more complex needs of the occupant (beyond simple shelter) is usually carried over into the actual structure of the house as well. Many rental units feature low insulation, sub-par windows, cheap mechanical systems and little to no attention to air sealing. They are inefficient which means they are expensive to the occupant and costly to the environment.
Over 30% of our homes in the US are occupied by renters. This number is likely even higher in major cities. Some of these renters have plenty of choice in the market (from high rise condos that haven’t sold to converted warehouse lofts), but even these privileged renters have very limited options when it comes to performance. For the majority of less well-funded renters the options are even slimmer. Sure, there are still cool warehouse conversions and old row homes, but if you are hoping for something healthy and efficient, you are likely out of luck. It is also tough to find modern architectural design in anything but the most expensive buildings.
Of course, there is a reason for this, particularly in Philadelphia where we have one of the worst build cost to rental rate ratios in the country. Rental grade is inexpensive. It is cheaper and easier to build drafty, under-insulated units. Material costs are lower if one is unconcerned about air quality. The margins are tight in the Philadelphia rental market, and often, to give people the space they want at a price they can afford, one has to cut corners.
So, how do we upgrade rental grade? How do we improve performance, design and health without pricing everyone out of the units?
To be honest, I’m not sure it’s possible. At least, I think it might be unrealistic to imagine that every rental can perform to the kinds of standards we expect from our homes. Rental grade finishes, in all their unpleasant glory, will remain a consistent part of the landscape. I certainly think there can be improvements in all rentals, but to expect radical change across the entire market is a bit niave. So, the question is, where can we effect change and what kind of change can it be?
I think that there is a market niche in rental much like the one we have identified in homeownership. This is a group of people with a price point somewhere in between the bottom of the rental market where mere location is the driving factor of choice and the top end where money presents broad opportunity. Much like in housing, I think there is an opening to provide a better product at a similar price, but it requires compromise from both the renter and the owner.
The owner needs to be willing to spend the time, energy and money (though hopefully not too much more) up front to create a better building. The design process has to be thoughtful and involved so that performance can improve without ballooning the budget and finish can become more “high end” without high-end products. This upfront investment may mean a slightly less intense focus on pure profit with an eye for the long term benefits of the building strategy on the bottom line. Energy rate increases, growing consumer education and potential incentive structures will add long term value to a building with potentially lower opening margins.
The renter needs to understand that a better designed space can be smaller and still comfortable. They need to embrace urban living so that the city becomes an extension of their home. There may be a slight premium to the spaces but if they can grasp the energy savings and learn to use the building to their advantage that premium evaporates in the face of other savings. There shouldn’t be a sacrifice involved in a well design building. Quite the opposite in fact. But there needs to be a change in perception, especially when it comes to unit size.
Naturally, there will be a finish value difference to be understood as well. This is where design comes in. The expectation of things like granite countertops and other supposedly high-end specifications needs to be challenged by design that redefines affordable materials and creates a new understanding of value. Healthy finish options, artfully assembled can create a better space than all of the sexiest interior design in the most expensive downtown loft. I truly believe that good design can work it’s way around cost.
Lastly, the renter needs some flexibility when it comes to location. This is, however, not a one way street. While the renter should be prepared to find themselves slightly on the edge of their search area, owners need to provide locations that are well connected via transit and in neighborhoods growing in vibrancy and amenities. Location is the key consideration of many renters and owners need to help those renters understand new areas of the city that are not only viable alternatives but in many ways better ones.
This is, as usual, just a rambling account of my own opinions. It is light on details, but that is something we will remedy soon as we begin to develop our own rental units. In fact, we have already sent a couple investor proposals to that end, and if you are interested in getting involved, you need only let us know. We will be talking quite a bit about our specific strategies as those projects get under way.
As always, this post is intended as more of a conversation starter, albiet a long one. So, what do you think? What is the niche market where energy efficient rentals are possible? How much do health, efficiency and design matter to renters? Even if renters aren’t necessarily willing or able to pay much more for a rental are they willing to rethink space requirements, finishes and location in exchange for these things?
Let’s knock this about in the comments.