‘The Accidental Economist’ with Jack Kern: Take Two Price Increases and Call Me in the Morning

What many do not seem to realize is that pricing and revenue management practices are pushing residents into alternative housing choices, ones that rarely raise rents at the same rate as professionally managed buildings.

We’re in the beginning of rent season, where office managers start to sing again and residents chirp their discontent for paying more to get less. The pricing and revenue management systems have been refined to utilize lower scores in resident screening and identify rent-increase potential based on less traffic across the board.

Recently I was in the middle of a discussion between several major owners, their pricing staff and some of the vendors for these systems. It seems that while rents are increasing and new modules are being developed, some of the sales teams for these automated price emperors are touting their newly advanced capabilities and talking about why it’s worth paying a higher per-unit price than last year. Oh, how this gives me a headache.

I’m fond of telling people that research is the advocate for that elusive commodity, the customer, and I have to tell you, these systems are creating havoc right now in a lot of ways. Not only are some renters looking to rent someplace where the price doesn’t change every day, but many of them are looking at non-traditional alternatives. It seems you can rent a condominium or a single-family home for almost the same rate as a professionally managed apartment, and the rent is a number you can understand from a person that doesn’t hide behind a black box. Now, fundamentally I’m not against these PRM systems, and in certain circumstances I think they can help out a great deal. Try changing from managing 50 units to 600 units and you’ll see what I mean.

What I am hearing that I find distressing is that many portfolio managers and asset-level managers are becoming discontented with these systems because, on a benchmark level, a large number of properties across mostly A and B platforms are under-performing. It is mostly because the site staff has been told to obey the black box and not attempt to capture a prospective renter unless they use what someone told me were “stupid pet tricks,” meaning you offer something. They get to the door, you offer a small concession; they get to the parking lot, you offer a few months free. It’s become like a bazaar, with everyone saying they’re burning off concessions, but in fact they’re just adjusting pricing and hiding what are retention problems.

Stability in a rental property is an important factor in assuring a good quality of life for the resident. I like to see a lot more service in the tired phrase customer service, and a lot less worshiping the black box. What many do not seem to realize is that, as an industry, these practices are pushing residents into alternative housing choices, ones that rarely raise rents at the same rate as professionally managed buildings. Pricing power is still in the hands of the resident, and this high season of rental discontent is going to see an early fall. With average incomes not keeping pace with spikes in rent in most places, the pool of available customers is getting smaller all the time. The smart money is on the operator that listens and leaves the black box as a doorstop.

Jack Kern is the managing director of Kern Investment Research, LLC and a recognized expert in consumer behavior, rental markets and property research. He is also the founding chairman of the Association of Real Estate Research Professionals, a 550-member organization dedicated to the art and science of research. Jack can be reached at 301-601-1900 or [email protected].

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