^{Wealth & Poverty Review} Permits, Fees, and Penalties — Property Owners Face a Web of Costly Regulations

When cities tighten the rules and regulation of rental properties, property owners are forced to increase rent to offset the costs or risk losing the ability to continue providing rental housing. In some Washington cities, landlords bear the heavy costs of city regulations while the city provides no protection from non-paying tenants whose payments are needed to help cover these costs. The result can feel like a lose-lose for property owners — pay the costly bills associated with city regulations, and if you do everything right, the legal system may still abandon you with non-paying tenants you can’t evict. 

As Washington State lawmakers recently announced that they are considering the creation of a statewide rental registry program, a closer look at such programs is warranted. Rental registration and inspection programs are good examples of the costly regulations driving up prices for rental owners. Similar to Seattle’s Rental Registration and Inspection Ordinance, the City of Lakewood — south of Seattle — passed an ordinance in 2016 to create the Rental Housing Safety Program (RHSP). All rental properties must be registered with the city, for a fee, and undergo inspection to “ensure that all rental housing units comply with specific life and safety standards.” 

Here’s an example of how this ordinance plays out. In 2022, a rental management company received a notice from the city that one of their units was not registered with RHSP. Upon a tenant-requested inspection of the unit, the city also found several issues that did not pass their inspection standards. The unit was deemed noncompliant, and the city determined that it could not be legally occupied. As a result, ownership had to pay the tenants three times the monthly rent in relocation assistance and return their deposit.  

Furthermore, the property owner was fined $150 per day for the first 10 days that the violation continued to exist, and $500 per day thereafter. 

But it doesn’t stop there. Because the unit was not registered, the owners were “responsible to pay double fees” to register it amounting to $1,824. The city gave management 7 days to register the property and pay the fees, 10 days to apply for permits with the city to make the needed repairs, and 25 days to be in full compliance. In addition, because they had replaced a water heater without a permit, the city required management to apply for a City of Lakewood plumbing permit with “double permitting fees” as a penalty.

North of Lakewood, the City of Kent created a Rental Housing Inspection Program (RHIP) with the same purpose as RRIO and RHSP. The manual for inspectors is 16 pages long. 

Difficult rules do not necessarily mean unfair rules, but to get a sense of what landlord and property managers face, consider this section from the manual (spelling error theirs, not mine):

Expansion tanks are required on water heaters manufactured on or after 1994. The 2015 UPC section 608.3 requires expansion tanks when a water system has a check valve, backflow preventer, or other normally closed device that prevents dissipation of building pressure. If the presents of a check valve, backflow preventer, or other normally closed devices wishes to be challenged, it is the responsibility of the property owner to provide a letter from the water system provider, City of Kent Public Works, and a licensed plumbing professional.

In response to this rule, an apartment community in Kent was forced to install 71 water heater expansion tanks at the property costing nearly $19,000. The same management company spent an additional $8,300 for expansion tanks at another property. That’s more than $27,000 in unforeseen costs due to city law. After facing pushback, the City of Kent agreed to remove the expansion tank from their inspection program.

It is not unreasonable for cities to inspect rental properties, create safety standards, and enforce those standards to the extent that they protect tenants from unsuitable living conditions. However, it should be no surprise when costs associated with such regulations contribute to the rise in rental prices. The median monthly rent is $2,115 in Kent and the average rent has increased roughly 16% since 2020. 

In addition to money spent on inspections, repairs, permits, and penalties, property owners lose money on unpaid rent and legal fees for lengthy eviction proceedings. In 2021, Pierce County, home to Lakewood, was cited as having the highest eviction rate in Washington State. According to one reporter, an estimated 23,000 households contributed to a combined $95 million in unpaid rent. 

Seattle has seen a steady decline in small rental properties, with landlords citing the city’s burdensome regulations as the reason they remove their homes from the rental market. This should be a wake-up call for Washington State lawmakers as they seek insight for a statewide rental registration program. Washington’s leaders, as well as elected lawmakers in cities like Lakewood and Kent, should take note of Seattle’s rental property decline and incentivize rental property suppliers rather than driving them away.