Amherst, A Rental Market of over $100 Million Dollars a Year?
Photo: istock
During the 32 years we have lived in town, I have seen public conversations take place that examine what ought to be the optimal size and the rate of development for a town of our size. Included among these discussions are questions about what should be the desired density of housing in town. However, there has been little discussion about the relative size of different “markets” in the town. The few discussions that have occurred have focused on the retail and restaurant markets. Comments have been made about how many of the owners of those establishments actually live in Amherst. To my knowledge, though, those discussions have not quantified the income represented by these two markets or other markets. The only economic market that does get quantified is the amount of money that the University of Massachusetts brings into the area.
One thing that I cannot recall is any discussion about the size of the rental market here in Amherst. It was a definite surprise for me, then, to discover that Amherst is actually a rental market that exceeds $100,000,000 a year.
How do I come those figures?
Source of the Data
Town records indicate that in June 2023, the town issued 1,207 rental permits.
The 1,207 permits were for various property types:
- Apartment Complex
- Condominium
- Mixed-Use (Businesses on first floor; Apartments on higher floors)
- Other
- Sorority/Fraternity House
- Single Family house
- Three Family house
- Town House
- Two Family house
Included among this list, are 63 permits for housing that is not for-profit. These permits are issued to:
- Amherst College (36 permits)
- Amherst Housing Authority (14 Permits)
- Sororities & Fraternities (8 permits)
- “Income qualified” apartments (3 permits to Olympia Oaks, Clark House and Butternut Farms)
- Amherst Historical Society (1 permit)
I subtracted that list from the total permit list of 1,207. The remaining sum is 1,144 Permits.
These 1,144 permits are comprised of 4,690 rental units with a total of 9,590 bedrooms
Basic Computation of Yearly Income
The rents in Amherst average $1,000 per month per bedroom. If there are 9,590 bedrooms, this amounts to:
- $9,599,000 per month
- $115,188,000 a year.
Hence, Amherst is a rental market that exceeds $115 million a year.
Where and to Whom Does This Money Go?
The monies for rental units go to owners who live in four categories of location:
- Owners who live in Amherst
- Owners who live in towns within 20 miles of Amherst town line (Northampton, Hadley, Belchertown, Pelham, etc.),
- Owners who live in Massachusetts towns and communities, farther than 20 miles from Amherst town line,
- Owners who live in another 22+ states within the United States.
Let’s begin by examining the permit holders in the first location category, owners of rental permits who either live in Amherst or within 20 miles. We find that:
- Over half the total rental permits fall into this category: 672 permits (or 58.7% of all permits).
- This includes 2,003 rental units and 4,353 bedrooms.
- At $1,000 a bedroom this amounts to $52,236,000 per year.
If we look at only those permit owners who live in Amherst, we find 522 permit owners (or 45.6% of all permits).
Here is the breakout of different types of property, number of rental units, and number of bedrooms represented in permits issued to owners who live in Amherst:
Type of Property Number of Rental Number of
Units Bedrooms
Apartment Complex 646 1138
Condo 67 165
Mixed Use 359 497
Other 109 214
Single Family 237 846
Three Family 120 302
Townhouse 5 13
Two Family 170 496
TOTAL: 1713 3671
This total of 3671 bedrooms amounts to $44,052,000 a year in rental income for owners who live in Amherst.
In the next installment, I will examine the data about the rental permit owners who (a) live in Massachusetts communities that are more than 20 miles from Amherst and (b) the rental permit owners who reside outside of Massachusetts, in one of more than 22 other states. I will also list the rental permit owners who generate the most income from Amherst rental property, and their city of residence. In some cases, the closest we can get to identifying the owner is the LLC (Limited Liability Corporation) that is registered with the Massachusetts Secretary of State.
In closing, I feel more than a little unsettled at both the size of this rental market, and the fact that there is no public discussion about the role of this stakeholder group in considerations about the desired future of Amherst.
Are you able to calculate how much of that goes to Property Taxes?
Debt Service?
Insurance?
A one-line, back-of-the-envelope-calculation suggests MB is in the ballpark (right order of magnitude):
($rent/student annually)x(#off-campus students)~
$10,000×10,000=
$10^4×10^4=
$10^(4+4)=
$10^8=
$100,000,000 rent annually
The total assessed value of rental property would be an order of magnitude greater, so the annual real estate taxes collected on rental property might be about 10×2.5%=25% of that rent, around $25,000,000.
By the way, any tax-conscious rental-real-estate investor carefully ensures the 3 items TC mentions — plus “depreciation” — exceed the rental income since they are tax-deductible against rental income.
In some states, LLC’s are not required to disclose their full list of partners. After contacting the Secretary of State’s office, I was told this is not the case in MA. All LLC partners are part of the public record. Amherst should require that all LLC partners be listed as part of the town’s real estate database – potential renters should not have to request records from the Secretary’s office. This would help both renters and neighbors to ID problem landlords. Individuals participating in multiple LLC’s invite the question, “Why?”
There are almost certainly properties rented without permits. This is money left on the table by the town.
Given the infrequency of rental inspections, how does the town discover if a property does not have a rental permit, how many unpermitted rentals have been found in the past year, and what was done?
Thank you for your effort at quantifying this .
I wonder, when is enough student housing being developed, enough .
It doesn’t end .
There is another recent phenomenon happening in Amherst that residents should be concerned about: Deep-pocketed, out-of-state real estate asset management firms.
Archipelago Investments, the folks who brought you six five-story, nominally “mixed-use” buildings — with yet another planned for Atkins Corner — originally billed themselves thusly: “Third-tier markets centered on major research universities have weathered the current crisis [the Great Recession] with surprising strength. With a high quality-of-life, broad demographic appeal, and top-notch cultural amenities, our target markets promise future growth. Passed over by big-city developers, these communities are repositioning themselves as innovation hubs within the larger national context” (from Archipelago’s 2012 website).
A quick check of the Secretary of the Commonwealth’s website yesterday showed that five of Archipelago’s six projects (the only exception is their first, Boltwood Place) are now either owned or managed by Harrison Street, located at 444 West Lake Street in Chicago. The SOC Signatory is Christopher N. Merrill, Chairman and CEO of said company. According to their website, “Harrison Street is a leading investment management firm exclusively focused on alternative real assets. Headquartered in Chicago and London …. the Firm has …. nearly $56 billion in assets under management.”
The questions that should concern Amherst residents have to do with a loss of local control. Despite Archipelago’s initial promises of attracting all sorts of demographics to their projects, these buildings were most likely designed to provide the highest and most profitable use to their developers: as off-campus student dormitories. While new buildings with high rental income may bring a welcome injection of real estate taxes into town coffers, they also bring other problems and concerns peculiar to the student-rental segment of the housing market. What consequences will this have for both Amherst homeowners and renters, and the town as a whole, particularly when it appears that when one of these projects nears completion, the next will soon be proposed?
I’d like to comment on what seems to be a misunderstanding of LLC’s.
Although LLC’s can be used to shelter individual owners in some states and some may use them for that purpose. However the primary reason for using them is to protect from liability. Some ppl will have one LLC per property. If you are a multiple property owner this gets very very expensive. There are annual fees as well as individual tax returns. Other investors will put multiple properties in one LLC to reduce the LLC costs but also add some liability protection. Property owners need to protect against our litigious world. We do that by using LLC’s and expensive liability insurance. It does not mean ppl are hiding or are out of market owners.
Maybe an attorney can add to this or correct me if I’m off the mark. But I use LLC’s for the reasons above. I’m local and have no issue with ppl digging in to determine ownership. I currently own a couple properties under my name that will be put in LLC’s soon for liability reasons. Not to hide. Too many ppl refer to these tools as something negative. They are similar to trusts. Very smart planning !
” so the annual real estate taxes collected on rental property might be about 10×2.5%=25% of that rent, around $25,000,000.”
If that is correct — and I’m not saying it is because RK lost me with his “back of the envelope” calculations, I have two things to point out.
1: The UMass Students are contributing 25 Million Dollars a Year to the Town of Amherst.
Why should they, through UMass, pay anything more?!? (OK, it’s not all UMass students — but anyone renting in Amherst who isn’t a student has a housing subsidy because anyone else would be in Belchertown or Northampton and we all know that…)
2: 25% of UMass Student’s rent goes directly to the town — and WHAT ARE THEY GETTING FOR THAT?!?
Not schools because they don’t have children and won’t be in Amherst when they do. Not police protection because everyone knows that the APD doesn’t serve *them*, and their per-dollar of fire protection versus a house out in Amherst Woods — they are way overpaying. And all the other stuff the town spends money on, it doesn’t benefit UMass students.
I have long said that if the UM students ever figured out exactly how much they are actually paying to the Town, it would be incendiary. And it will be, although what I suspect will happen is a steep (and permanent) decline in the number of young people deciding to attend UMass in the first place.
But assuming that RK’s figures are correct, you take the four students living in a house — because Amherst will only permit four — and one of those is paying ALL of her rent just to support Amherst’s largess. Think about that for a minute…
…Think about it from HER perspective.
Even better — think about it from YOUR perspective, as if it was your daughter paying YOUR money to some town in Pennsylvania… Wouldn’t you ask what she was getting from said town in Pennsylvania???
Please see my article published in the Indy 14 months ago.
https://www.amherstindy.org/2022/12/16/opinion-owner-occupancy-can-be-a-first-step-in-new-housing-strategy-that-benefits-the-entire-community/
Michael, the numbers that you arrived at are consistent with those I came up with by “back of the envelope” estimates. I often refer to the student housing market as a “natural resource” that we should be harnessing to our collective benefit rather than being satisfied with the small marginal benefit of property tax income. See the Indy article I wrote a little over a year ago urging us to expand our strategies for capturing this wealth to greater collective and community benefit.
https://www.amherstindy.org/2022/12/16/opinion-owner-occupancy-can-be-a-first-step-in-new-housing-strategy-that-benefits-the-entire-community/
Thanks so much for this article. I’ve been counting the numbers of family houses on each street in my neighborhood that are being lost to LLCs.
I personally think we should ban any LLC or other corporation, local or otherwise, from purchasing residential property at least on non arterial streets or designated zones, and require returning any currently owned to non-corporate ownership within x number of years. That is how we could restore our wonderful, diverse, family neighborhoods.
Thanks, Bob! I didn’t remember your piece, but at least we agree on the math (and likely on much more) – I just wanted to check MB’s numbers on the back of a (very small) envelope (though quickly did it in my head first ;-).
The nice thing about math is that it’s available for everyone, and if done carefully, the results are reliably consistent.
In support of Bob Greeney’s point, only 11% of all the rental permits indicate that they are Owner Occupied. That is 136 rental permits out of 1,207 permits.
” I often refer to the student housing market as a “natural resource” that we should be harnessing to our collective benefit…”
I’m reminded of the story about the goose (or hen) that laid golden eggs. The farmer that owned her got greedy and instead of just being happy with the one gold egg a day, he killed her on the presumption that she had much more gold inside. But she didn’t and he wound up with nothing.
Higher Ed is in transition, the bottom is going to drop out in Fall 2026 when the children not born in 2008 won’t be turning 18 and going to college, and what I’d be more worried about is these LLCs declaring bankruptcy and going into foreclosure, which is exactly what would happen if there weren’t 14,000 UMass students renting them at way-above-market rental rates. (For those who don’t know, the Amherst Housing Authority pays 120% of what HUD considers to be a “reasonable rent” for the town.)
If I were an Amherst property owner, I’d want to keep that goose healthy. Just sayin…