We have covered rising costs for landlords extensively over the past couple of years. From homeowners insurance to local property taxes, it’s gotten a lot more expensive to be a homeowner these days. Repair costs of course have risen dramatically as well. While many of these costs will probably subside a bit over the next two years, we wanted to cover one that appears likely to grow dramatically from here. Rental home repair labor.

Read from 2020: The Relentless Rise In Repair Costs

As stricter immigration policies take effect, several economic sectors are poised to experience shifts in labor availability and cost. The real estate rental market, particularly in the context of property maintenance and repair, is one sector that could see significant impacts. Historical data shows that immigrants constitute a substantial portion of the workforce in blue-collar industries, including construction and maintenance, which are critical to rental property management.

Read: Navigating Skyrocketing Homeowners Insurance Rates

Statistical Overview

Immigrants make up about one in five workers in construction, a primary sector for rental property repairs. The Pew Research Center has highlighted that this proportion is even higher in certain states and sub-sectors such as remodeling and repair. These workers often play essential roles ranging from skilled trades like plumbing and electrical work to general labor and renovation.

Projected Labor Shortages and Cost Increases

With stricter immigration policies potentially reducing the flow of these critical workers, the immediate forecast includes labor shortages and increased wages demanded by the available workforce. As labor costs constitute a significant portion of property maintenance expenses, rental property owners might face higher outlays for keeping their properties in good condition.

Effects on Rental Property Owners

For rental property owners, especially those with older or lower-quality constructions, the increase in maintenance costs could erode profit margins. Older properties typically require more frequent repairs, and without affordable labor, the cost of maintaining these properties can escalate quickly, making it difficult to achieve a reasonable return on investment.

Impact on Investment Returns

Poorly built or maintained homes are particularly vulnerable. These properties often require more significant and frequent repairs, compounding the cost issue. Additionally, management models that prioritize higher rents over resident quality can exacerbate these challenges. A lower screening standard can lead to a cycle where properties deteriorate under the tenancy of residents who contribute to wear and tear, followed by inadequate repairs that fail to restore property condition, attracting even less desirable residents in a repeating cycle.

Strategic Implications for Investors

Our analysis 15 months ago advised investors of the need for diligent maintenance and disciplined resident screening. This guidance is now more pertinent than ever. Investors who fail to maintain properties adequately or who cut corners in resident selection may find themselves in a cycle of declining property value and diminishing returns.

Furthermore, as the rental market increasingly divides into high and low tiers, properties in disrepair not only struggle to attract quality residents but also experience significant drops in rental and sales value. This bifurcation leaves poorly maintained properties trapped in a downward spiral of decreasing desirability and financial viability.

Conclusion

In conclusion, while rising costs are a concern, they should not be an excuse to reduce investment in property quality. Now, more than ever, disciplined investors who maintain their properties meticulously and choose their residents carefully will distinguish themselves in the market. Those who neglect these principles may find themselves among the losers in an increasingly polarized rental landscape.