Scattered Site Rental Toolkit:

Business Planning for Development & Management









III.C. Assessing Regional and Neighborhood Markets

Rental housing markets are tough to assess in the current economic climate. SSR development assessment is even more difficult because each unit is often unique and units are diffused across a variety of neighborhoods. Nevertheless, you will need to determine what units and what households to target with you program. You must first determine the leading element: are you seeking to serve a specific population or to stabilize a specific neighborhood? Answering this question dictates what questions you need an in-house or professional market study to answer.

Use what you know: Nonprofits are usually very familiar with the neighborhoods in which they work and with the people they serve. This is one of their strengths. Use this strength to your advantage. Think about the reasons that people would or would not want to live in a neighborhood and whether those things can be changed or built upon through your work or the work of others in this place. For example, are there dilapidated houses that need to be torn down, or neighborhood anchors such as good schools or a hospital where people could find employment?

Also examine quantitative and anecdotal information about the people that you serve. What are their needs? What are they looking for in a home? How many kids do they typically have? Are they single mothers? Will they need childcare services or public transportation in order to go to work?

Conduct an in-house survey of the market: Early on in shaping your SSR program, you may want to perform some data collection on your own to help you make some educated estimates for your program and project design. You may conduct a cursory survey of rental properties in your service area to project potential rents and likely unit amenities required for your project. You may examine income data and chronic issues for your existing clients to determine affordable rent ranges and needed support services.

Procure a professional market study: If you are not adept at dealing with statistical analysis and working with demographic data, engage a professional firm to conduct a market study.

Market studies will generally start with some very basic assumptions about the economy and the housing market and then look at general economic and demographic information in your region and target area. Next they will offer an inventory and analysis of the multifamily housing market and submarkets, providing information about comparable properties, competitive rents and unit features, vacancy rates, time required for lease up, and new developments underway.

Be very clear what specific questions you want answered by the study and list them individually in the contract scope of work with the market analysis firm. Examples are as follows:

         What unit designs and amenities do we need to develop to attract our target renters?

         What is the profile of the household types that will be attracted to our units (income, size, where they currently live).

         What would market-rate rents be for our units once rehabbed/constructed?

         What marketing strategies should we employ to lease-up our units?

Be careful about market assumptions: Market studies have to make assumptions about the type of units that you will be developing and about the characteristics of the households to which you will be marketing the units. Because each unit is unique you need to take those assumptions with a grain of salt. Those townhouses that the market study assumed may have a different market than that single family home with a yard. The hardwood flooring and the view from the house you are developing may make the market different than what was projected. The poor floor plan and lack of a second bathroom may make the house you are rehabilitating more difficult to lease than what the market study predicted.

Dealing with NIMBY issues: If doing rental development at any scale, some opposition from within the surrounding community is to be expected (Not In My Back Yard). This opposition may exist for a variety of reasons. Many people are naturally resistant to change, particularly if change involves the unknown. They may also be concerned about the lowering of property values, especially if the neighborhood is primarily owner occupied. There may be concerns about increased crime or drug traffic, or that people may not keep their houses painted, their yards mowed, or the trash picked up. Residents may have concerns about increased noise and traffic and about how many people will live in one house. They may be concerned about negative influences on their children. These can all be legitimate concerns that need to be addressed. In addition, some people will likely have prejudices against people of particular racial or ethnic groups or about low income people in general. In some cases they may also have irrational fears. These issues also need to be tackled.

One way to help people to work through their concerns is to spend time with them. Sometimes a series of public meetings to build neighborhood support and buy-in for your overall community goals can be helpful. Help them to visualize the positive impact that your work will have on the community by cleaning up blighted properties and putting them to good use. Showing them how you are providing housing that their grown children or their aging parent or the school teacher for their kids may need to live in can be useful in helping them to make the connection between your goals and their goals for the neighborhood. Giving them a chance to express their concerns may make them feel better, particularly if you are able to provide adequate facts and assurances to ease them.

Another way that you can address their concerns is by developing a reputation as a good neighbor. If you are careful in your tenant selection; develop attractive, high quality houses; maintain your properties impeccably; manage your tenants well; keep a close watch on your units; and offer services to the surrounding community; then you will be well on your way toward easing fears. However doing these things can be very challenging with this type of development. You will need to build into your development and management plan adequate funding and consideration for each of these elements in order to be successful.

A third way that you can address the concerns of residents is through the structuring of your development plan. By keeping rental units somewhat dispersed or by using a lease purchase model concerns will likely be less intense. Another option is to make rental housing a small part of a plan for the community that includes many other desirable features. Then, if you can sell the overall plan, you may find success.

Next: III.D. Property Selection and Acquisition Strategies