Study Demonstrates Importance of Proactive Rental Inspections

An article in Urban Studies, The three tenures: A case of property maintenance,” examines differences in the maintenance of owner-occupied homes, rental properties with resident landlords (who occupy one of the units), and properties with absentee landlords. The authors find that in 2017, code violations were about twice as common in small rental properties with absentee landlords than in small properties with resident landlords. Examining differences among absentee landlords, the authors find no evidence that landlords who use limited liability companies (LLCs) had worse maintenance records, but properties handled by professional management companies did have more problems. They argue these findings underscore the importance of regular, proactive rental inspections.

The study focuses on Rochester, New York, because the city proactively inspects rental properties with three or more units every three years and all other rental properties every six years, which makes inspection results a more reliable indicator of property maintenance. From a public database, the authors drew property assessment records and building inspector reports for 2017, and the city of Rochester provided 2011 data for longitudinal comparisons. These records include street address, address of the property owner or manager, the property’s assessed value, the number of units in the property, and the number of housing code violations.

The authors classified the properties into three tenure categories: owner-occupied, resident landlord, and absentee landlord. They identified 27,900 owner-occupied single-family homes, 3,000 buildings with two to six units that were owned by resident landlords, and 22,200 properties with one to six units that were owned by absentee landlords. Looking at absentee landlords, they attempted to distinguish rental properties owned and managed by private individuals, investors who use LLCs, and properties handled by professional management companies. They restricted their focus to small properties with six or fewer units because resident landlords were exceedingly rare in larger properties.

Only 4% of owner-occupied properties had one or more unresolved code violations, compared to 13.5% of properties with resident landlords, 25.2% of single-unit homes owned by absentee landlords, and 27.1% of multi-unit buildings with absentee landlords. The lower rate for owner-occupied properties likely reflects there is not a proactive inspection policy for such homes. The authors argue that resident landlords in small properties are likelier to have closer relations with their tenants and be more responsive to their concerns, which could influence property maintenance in those buildings. Resident landlords can apply for exemption from inspections of the units they themselves occupy, which might lower code violations considerably in duplexes with resident landlords. When looking at properties with three to six units, properties with resident landlords had higher violation rates than properties with absentee owners.

Property values made an important difference to the rate of code violations—the rate in absentee-owned single-unit properties ranged from 49% in the cheapest homes to just 14% in the most expensive. Controlling for value, tenure differences are reduced. This analysis cannot identify whether absentee landlords are more likely to buy cheaper properties that require more maintenance or whether their business plans involve less investment in maintenance.

The authors used 2011 data to track changes in tenure and ownership. In single-unit properties where the owner changed from being an absentee landlord in 2011 to being an owner-occupier in 2017, the code violation rate in 2017 was 12.6%, higher than all owner-occupied homes but lower than absentee-owned single dwellings. Among properties that switched from owner-occupied to absentee-owned rentals, the code violation rate was 21.1%, approaching the level of all absentee-owned properties. The authors infer that changes in tenure made a difference to property maintenance.

The authors found no evidence that the use of an LLC affected property maintenance, as code violation rates for such properties were similar to those of all other absentee landlords. Because LLCs offer investors a way to hide their identify and limit legal liability, however, the authors caution that further research on the impact of LLCs is needed.

The analysis did find that small properties handled by property management companies had a higher rate of code violations—38.2% of such properties had one or more unresolved code violations, about one and a half times as high as that of all absentee landlords managing their own properties. A forthcoming paper will explore the demographic dimensions of this problem, as the authors found the difference was largely found in Black neighborhoods.

Finally, to estimate the significance of frequent, proactive inspections, they compare code violations for two- and three-unit properties with resident landlords. Two-unit properties with resident landlords are only subject to inspection every six years, and 11.5% of these properties had one or more unresolved violations. Three-unit properties, subject to inspection every three years, had a higher rate: 31.3% had an unresolved violation. One possible explanation is that frequent inspections identify problems that otherwise go unaddressed.

Find the paper here: