Apartment owners have been some of the most vilified business owners in the United States in recent years. From the class action lawsuits against RealPage to the politicization of rent control policies, the stereotype of the greedy multifamily landlord is deeply ingrained. America’s affordable housing crisis has many looking for someone to blame, and landlords are bearing the brunt of it.
Another frontline in the demonization of the multifamily housing industry is new laws protecting renters from so-called “junk fees.” According to the Biden administration, junk fees in the rental housing sector include application and service fees, such as fees for paying rent online or for mail sorting and trash collection. Others have suggested that Wi-Fi or pet rental fees are also considered “junk fees,” and that these fees are often hidden and exploit market power.
Lawmakers are cracking down on junk fees across industries, including rental housing. Last year, the Federal Trade Commission proposed a new rule that would prohibit companies from charging junk fees, which are hidden or false fees that are not disclosed to consumers before a purchase. The FTC’s rule would require companies, including operators of multifamily properties, to disclose all transaction fees when they list or announce a price.
The FTC’s new rule is designed to increase transparency when shopping. With this rule, consumers will know exactly what they are paying for, how much it costs, and whether there is a better deal available. Companies that violate the rules will face fines, and the FTC will ensure that customers get their money back.
The Biden administration’s effort to ban junk fees nationwide is one of several recent actions that could impact the multifamily housing industry. Other federal actions include collecting information on certain housing practices, such as tenant screening records and rent increases, and the government’s creation of a Tenant Bill of Rights. Several states have also enacted new rules targeting junk fees. California recently banned junk fees at the state level, and the new rules went into effect on July 1.
Nearly a dozen other state legislatures have passed or introduced legislation this year that would prohibit or require the disclosure of junk fees in multifamily housing or all businesses. Maine’s bill took effect on April 3 and Virginia’s on April 17, with both laws applying only to rental properties. Other states that have introduced similar legislation include New Hampshire, Hawaii, Connecticut and New York.
In Colorado, the nation’s largest apartment manager was sued under a state law that predates the Biden administration’s focus on multifamily trash fees. Greystar was sued earlier this year for charging fees that tenants said were hidden. The class-action lawsuit, filed in Denver District Court on behalf of a former Greystar tenant, alleges the company charges unnecessary fees for services like trash collection that many tenants reportedly don’t learn about until after signing traditional leases.
The lawsuit against Greystar is one of the first of its kind after Colorado law goes into effect in 2022 that prohibits operators of multifamily housing from charging their residents for undisclosed costs. Earlier this year, Colorado authorities agreed to a $1 million settlement with property management firm Front Range over the company’s alleged practice of illegally charging tenants for routine services, unnecessary repairs or other fees that were not disclosed in lease agreements. Front Range manages about 5,000 rental units in Colorado, many of which are geared toward student housing.
Lawmakers are pressuring homeowners over junk fees, and the pressure is only likely to increase. In February, the FTC closed the comment period on its proposed rule on deceptive junk fees after receiving more than 60,000 comments. The FTC’s next step is to review the comments and decide whether to proceed with the rule, issue a modified version, or withdraw it.
A coalition of 11 real estate trade organizations, including the National Apartment Association, submitted comments on the FTC’s proposed rule. The coalition’s letter said a one-size-fits-all rule would interfere with differences in state fee regulations, which already cover restrictions on the type of rental apartment fees, recoverability and disclosure requirements.
Many in the multifamily industry feel unfairly attacked by the junk fee controversy. They argue that rental fees are minimal compared to the total cost of renters living. While application fees typically range from $25 to $100, the national average rent is over $2,000. These fees also often cover essential costs such as credit or background checks, as well as the time and effort required to process applications and actual business expenses. Multifamily property owners do not view these fees as “junk” fees, especially given the growing importance of tenant screening due to increasing application fraud.
Regulating garbage fees can also increase rents. Controlling garbage fees would mean that tenants would have to pay a higher base rent and would be forced to subsidize other residents’ preferences even if they pay rent on time, do not keep a pet, or engage in other fee-related behaviors.
Others in the multifamily housing industry believe that many new laws that render fees useless will not have much impact. Fee transparency is already standard in rental housing, and the National Multifamily Housing Council strongly supports it. Fee transparency commitments were already voluntary and largely met by apartment owners by noting fees in leases. The relationship between residents and housing providers is also tightly regulated at the state and local level, and other laws govern service fees.
One example of the negative impact of junk fee laws can be seen in Colorado. The state now prohibits landlords from charging more than $10 or two percent for services paid for through a third-party provider. When multifamily property owners offer a service like bulk Wi-Fi, they may pay about $1,500 per unit, meaning it would take years to recoup the investment. Colorado’s junk fee law has discouraged some condo owners from investing in such a service, which improves internet connectivity and is a coveted amenity among residents.
The zeal with which lawmakers are targeting rental service fees may be distracting from the larger factors that make housing unaffordable. The Cato Institute, a libertarian think tank, proposes several policies that would more meaningfully address housing affordability, such as reforming zoning regulations that prohibit the construction of apartments, townhouses, duplexes and condominiums. In another area, transferring just 0.1 percent of federal lands to the states could result in nearly three million new homes, significantly reducing the housing shortage in 15 Western states.
Regulating service fees may not do much to improve housing affordability, but it will provide political benefits to lawmakers. The new laws may not even have much of an impact on apartment owners, since many voluntarily comply with these policies. The real impact will likely be to add to the already heavy regulatory burden faced by multifamily property owners at the state, local, and federal levels. At a time when the rental housing industry is already demonized, new laws regulating so-called junk fees are unwelcome, but they shouldn’t come as too much of a surprise.
