Pet-Friendly LIHTC Developments May Increase Marketability While Minimizing Turnover and Providing Additional Income

Published by H. Blair Kincer , Jessica Balsam , and Kelly Gorman on Thursday, March 3, 2022

Journal Cover March 2022   Download PDF

During the period of isolation and uncertainty of the COVID-19 crisis, one place people went for comfort was pets. Since the start of the pandemic, approximately one in five American households acquired a dog or cat, according to a poll conducted by the American Society for the Prevention of Cruelty to Animals.

A November 2020 study by PetScreening and J. Turner Research surveyed approximately 23,000 renters, with 38% of respondents reporting owning a pet. Twenty-one percent of respondents that did not own a pet reported that they planned to get one in 2021. Similarly, Novogradac interviews with affordable housing operators–including Ovation Property Management and FPI Management–suggested a rise in pet ownership.

As many property managers report, pets–while cute and adorable–can harm a property and create costs for owners. Consequently, many owners and managers require pet fees and deposits. However, there may be ways to offset these costs other than simply charging a fee.

Currently, some rental properties simply do not allow pets. A July 2021 report by Michelson Found Animals and the Human Animal Bond Research Institute called “Pet-Inclusive Housing Initiative Report” (PIHI report), reported that 75% of owner/operators identify their properties as allowing pets. This figure is an increase from information contained in a 2005 study by FIREPAW Inc., where it was reported that approximately 50% of establishments allowed pets, indicating an increase in pet-friendly sentiment.

Despite increased pet friendliness, property owners are often cautious when it comes to allowing pets, with concerns related to damage, noise and insurance issues. Although each of these concerns comes with a cost, many believe pet ownership can be financially beneficial due to pet deposits and monthly pet rent. These fees are permitted by the Internal Revenue Service to be collected at low-income housing tax credit (LIHTC) properties, according to Mark Shelburne, Novogradac housing policy consultant. Although pet fees are a way to create additional revenue, FIREPAW Inc.’s analysis discovered a net benefit to pet-friendly property owners, independent of these fees. Cost savings occurred as a decrease in losses related to vacancy and marketing.

The 2021 PIHI report also supported this conclusion. Seventy-two percent of tenant respondents shared that pet-friendly housing was difficult to find and 59% felt that pet-friendly housing was too expensive. The study also found that residents remain in pet-friendly housing 21% longer than in units that do not allow pets. In addition, 83% of owner/operator respondents shared that pet-friendly vacancies are filled more quickly. Thus, aside from any pet fees that might be obtained by allowing pets, it appears there could be a financial benefit as a result of a competitive advantage or decreased turnover.

Operator participants in the PIHI report also shared experiences with reducing restrictions on pets. In 2019, The Management Group, which operates apartment communities in the Southeast, removed all restrictions regarding pet breed and weight. “The results were nothing short of amazing,” said Jamin Harkness, executive vice president of TMG. “After one year of our wide-open pet policy, we found that 80% of the residents with pets renewed. Based on this metric, we also do not charge pet rent. We believe the savings of vacancy loss and from not having to turn the unit far outweigh any pet rent we could charge. Too many fees tend to irritate residents, anyway.”

Novogradac interviewed a property manager at a pet-friendly, mixed-income community in the Burlington, Vermont, area. The contact shared that all tenants are charged the same pet deposit and monthly pet fee, regardless of their income, unless the animal qualifies as an emotional support animal and tenants have a reasonable accommodation. She stated that because of the scarcity of pet-friendly properties in the area, her pet-friendly policy is a competitive advantage, adding that 30% to 40% of residents have pets.

All of this is of particularly good news for income- and cost-sensitive LIHTC property owners, since there could be some financial uncertainty for tax credit properties over the coming years. Due to HUD’s use of consumer price index forecasts, the trailing nature of the HUD income limit calculation and the disruption of American Community Survey data collection, significant growth in the 2023 and 2024 rent limits is uncertain. There could be a negative impact from the unemployment and income losses that occurred due to the COVID-19 pandemic. For property owners looking for additional revenue sources and to recoup costs associated with an increasing number of tenant pets, permitting and charging for pets may be an option.

Further, by considering pet-processes as a competitive differentiator, property owners and managers may be able to capitalize on the “pet boom” we are experiencing. By accommodating the comfort and interests of pets and their owners, property owners may be able to gain a competitive advantage, possibly minimize turnover and obtain an additional source of income. 

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