Rents are too damn high — and a scourge of "junk" fees is making it worse, studies say
Even as prices are cooling for gasoline, groceries and online goods, housing remains a major factor in the cost-of-living crisis. Two years after the pandemic-driven rental surge began, rents in many major cities show little sign of easing.
In February and March, shelter costs were the biggest driver of month-to-month inflation, representing 60% of all inflation. New York City rents recently hit a new record, reaching an average $4,175 a month even before the summer season gets started.
Today, 40% of renters are rent-burdened, with the cost of keeping a roof over their head squeezing more middle- and even high-income renters.
But it's not just the rent that's too damn high. It's the rental application fee, late fee, pet fee, administrative fee and "convenience fee" for the privilege of paying your rent, according to two reports from watchdog groups.
These "junk fees" foisted on tenants have exploded in recent years, the National Consumer Law Center found. Renters "face a dizzying array of unavoidable fees" which, on top of record-high rents, "render safe and decent rental housing even more out of reach," the NCLC noted in a March report.
Application fees, utility billing fees and more
Take a common fee — the application fee, which can fall anywhere from $25 to $350, NCLC found. The fee is nominally meant to cover the landlord's costs of running a tenant screening, but many of the fees run well above the actual cost of a credit check. What's more, landlords often collect application fees liberally, charging many tenants who will never be eligible for the apartment, advocates in Maryland, Georgia and South Carolina told the NCLC.
Then there are processing and administrative fees, which range from $12 to $25 a month; utility billing fees — which are charged in addition to the actual utility costs — and "insurance fees," and "high risk" fees, charged to tenants deemed risker because they have lower incomes or credit scores than others.
Some landlords charge "convenience fees" for renters to pay their monthly rent online, while one Texas property owner imposes a $15 a month in-person payment fee to penalize renters who pay in a form besides an online portal.
More profit from fees than rent
The growing use of plug-and-play leases has helped juice these types of fees, one advocate told the NCLC. "The proliferation of extremely long boilerplate leases … has provided cover for large, poorly-managed multifamily apartment complexes to justify charging hundreds of dollars in fees to tenants despite failing to deliver on their own basic promises," wrote a Louisiana housing advocacy group.
Indeed, many landlords are now raking in higher profits from fees than from actual rent, according to earnings reports collected by Accountable.us, a watchdog group.
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AMH, formerly American Homes 4 Rent, grew its portfolio of single-family homes by 8.5% between 2019 and 2021, but its fee revenue grew by two-thirds during this time period, according to the group's securities filings. Speaking to investors last spring, AMH executive Bryan Smith touted a recently implemented "pet program" and said, "we're very excited about the opportunities we're going to have for ancillary revenue," referring to fees. (AMH did not respond to a request for comment from CBS News on its fee strategy.)
Tricon Residential, which owns 36,000 single-family home rentals, increased its fee revenue by 42% since the pandemic (when many late fees were banned). Last year, COO Kevin Baldridge told investors the company planned to increase that by 30% per renter "as we continue to roll out fees and other ancillary services," according to earnings transcripts.
Surging profits for landlords
In March of this year, Tricon touted record growth, with profits increasing to 70% from the year before, to about $780 million. Tricon did not answer a request for comment from CBS MoneyWatch.
When fees and rent are combined, the three largest apartment rental companies saw record profits last year, watchdog group Accountable.us noted. Starwood Property Trust, Mid-America Apartment Communities and AvalonBay Communities saw profits of $2.8 billion last year, up $800 million from the year before, which was itself a record.
Meanwhile, the three biggest single-family rental companies — Invitation Homes, AMH and Tricon Residential — enjoyed a $1.5 billion in profits, a $540 million jump from the year before.
The Federal Trade Commission recenty asked for comments on the tenant screening process; the FTC is also mounting a broader crackdown on junk fees as part of its mandate to curtail unfair and deceptive trade practices. Consumer advocacy groups, including the NCLC, Consumer Reports, the National Housing Law Center are pushing for a crackdown on these fees, which they call "exploitative," "deceptive" and "unconscionable."