Janesville’s rental market changing slowly | Government



When Gale Price attends meetings with local companies, he always approaches new people and asks them if they’ve found a place to live in Janesville.

The answer is usually “no.”

“They’re all saying the same thing on the rental side. They’re not landing in Janesville because there’s not units available,” said Price, the city’s economic development director. “That’s the challenge. Eventually, that becomes an economic development issue. You can’t attract the workforce to come to your company, and you can’t retain quality employees if they don’t have the right living environments.”

Janesville has struggled with a low rental vacancy rate for a couple of years. Still, as builders and city officials have said for months, rents are too low to cover construction costs of new units.

But simple economics should say that if supply is low and demand is high, prices should increase on their own.

They are rising. Just not high enough and not quickly enough, local officials say.

Higher building expenses are partially due to natural inflation. Tariffs on certain building materials and a construction labor shortage have added to the cost.

“Rents have not kept up with construction in Janesville,” Price said.

“Every single developer I’ve talked to—doesn’t matter if it’s a low-income project or a workforce housing project or if it’s a market-rate, high-end project—they’ve all said the same thing: unusually low rental rates in Janesville.”

How rents have changed

The average monthly price tag to rent a one-bedroom apartment in Janesville gradually has climbed from $572 in 2015 to a projected $612 in 2019, according to data from the U.S. Department of Housing and Urban Development.

That isn’t a substantial change from recession levels. The average one-bedroom unit would have cost $569 in 2009, as Janesville slowly began to reinvent itself after the General Motors plant ended production.

The federal formula is calculated using rental data from previous years and does not always account for real-time market changes. Janesville’s own projection of average one-bedroom rent for 2019 is $673, city Housing Services Director Kelly Bedessem wrote in an email to The Gazette.

In the aftermath of GM, some landlords hesitated to raise rents because they feared losing good tenants. The plant’s shuttering left plenty of rental units empty. Even as occupancy stabilized and swelled, a few landlords kept their rents steady, Price said.

Paul Schieldt is co-owner of R.K. Smith Realty, one of the city’s largest property management companies. Rents often increase during tenant turnover, when landlords reinvest in the unit and give it a face-lift, he said.

Making those upgrades might cost up to $2,000 but net a rent increase of only $25 per month. It would take time to recoup the investment, which is why many landlords prefer to hold rents steady and discourage tenants from leaving, he said.

R.K. Smith manages about 1,000 units, and its size stands out amid many mom-and-pop operations that list their apartments on Craigslist.

Schieldt didn’t think those small rental companies were holding back the market or being overly hesitant to charge more.

“They’re probably pricing against us. They’re probably going to our website and seeing what we’re charging,” he said. “In some cases they may be charging more or on par. Pricing conditions seek their own parallels. It doesn’t matter if it’s a for-rent unit or for-sale unit.”

Jump-starting the market

The Janesville City Council voted in September to modify its tax increment financing policy to include multifamily housing. Previously, the council could provide incentives to residential projects only if they were downtown, but the revision now makes the entire city eligible.

The change immediately sparked plans for a potential 250-unit, market-rate development near the southwest corner of Racine Street and Interstate 90/39.

Hovde Properties manages Woodsview Apartments at the northwest corner of the same intersection. Price said Woodsview was probably at the top of Janesville’s rental market because of its interior finishes and shared amenities on site.

Hovde has not officially proposed the project, and President Mike Slavish previously told The Gazette he wanted to submit plans by mid-October. He did not return calls seeking an update.

That isn’t the only potential multifamily development publicly revealed in the past few months.

The Corner Block on Parker would be a 60-unit building with co-working space on the ground floor and some underground parking. That project was presented in August at a joint city council and plan commission meeting but has not been officially proposed, either.

At the northeastern edge of the city, McCormick Crossing would have offered commercial space, multifamily residential and single-family homes. The plan commission nixed the idea in October after neighbors complained it would add too much noise and traffic and perhaps make the neighborhood less safe.

The developer said he planned to revise his ideas.

None of the projects have formally asked for TIF money, but if recurring comments from Price and developers are any indication, it’s likely they would request financial help to cover construction costs and compensate for low rents.

Subsidizing high-end and market-rate residential development as the city pushes to address homelessness might raise eyebrows. But it’s a tool the city must consider if it wants to compete with other municipalities, Forward Janesville President John Beckord said.

Janesville doesn’t necessarily have to offer the same deal as, say, Middleton would, but no help at all means the city should prepare for “very modest” residential growth, he said.

“Most developers have choices, and they can deploy that capital in lots of different places,” Beckord said. “If you don’t want to compete against other communities, that is a legitimate decision for a city council to make. But understand what the consequences are.”

Price said Rock County is a prioritized area for the Wisconsin Housing and Economic Development Authority, which awards tax credits for low-income housing. Projects at both ends of the economic spectrum would balance the market and give renters more choices, he said.

Historically, Janesville has offered plenty of blue-collar job opportunities. But the local economy is beginning to change with companies such as SHINE and N1 Critical Technologies making their homes here.

Those businesses and others have more executive-level jobs, which the city hasn’t had much of in the past. That demands more high-end housing, Price said.

Ultimately, though, Janesville needs rental units at all economic levels because the city hasn’t seen a new project in 12 years. That’s when Woodsview was finished and townhouses at Holiday Commons were constructed, he said.

If Janesville’s employment and economy remain strong, Price sees the rental housing market continuing to grow. Many people have decided to rent because they either can’t afford or don’t want to maintain their own homes.

Different generations are powering those changes across the country, keeping the rental market robust. Janesville will be no exception.

“The millennials and baby boomers are converging on the same point in the market. They’re looking for the same type of product but for different reasons,” Price said. “The baby boomers are trying to downsize. The millennials are choosing that life path to be renters in nice rental units.

“I think that’s going to drive a lot of this multifamily stuff.”

2018-11-25 10:04:05

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