The student housing market, in economic terms

When I was a sophomore participating in the stressful rush to obtain housing for my senior year, I had no idea where to start or what signing a lease encompassed.

I heard from many peers, and saw as I walked the streets near campus that most student-leased properties had an “A” plaque on their doorway, indicating that it’s an Amicus-owned property. 

I sensed the ever-growing presence of Amicus in our community between marketing pop-ups, social media videos and the employment of Lehigh students within their company. 

As a clueless sophomore, Amicus appeared to be a reliable, safe and trustworthy option for housing. If that’s what everybody is doing, that was the first place I thought to look.

I clicked on their website and was met by an appealing, modern-looking layout featuring swaths of bright photographs showcasing their seemingly high-end properties around Lehigh’s campus. Their marketing worked to calm the nervousness surrounding the housing hunt, and I felt I should rent from this company.

In 2012, Amicus Properties was founded “to provide students with comfortable, safe housing alternatives while preserving the integrity of college towns,” according to the company’s website. Amicus says their  mission is to modernize the off-campus living experience, turning “perfectly located homes into ideal homes for students to thrive.” 

It was not until I heard their rent prices that I did a double take. 

Amicus rent prices have a wide range, mainly depending on the location. On E Fifth Street, some students pay $1,250 a month for a five-person home. On Van Buren Street, students are paying around $1,500 for newly renovated homes.

Southside Commons and Marshall Valley do not provide a cheaper alternative, with rents starting at $1,300 and $1,600.

As Amicus and other companies including Southside Commons and Marshall Valley continue to push high prices and target their marketing, independent landlords and Bethlehem residents may increasingly be pushed out of the market.

From a student perspective, the dominant housing companies in South Side Bethlehem are Amicus, Southlight, the Marshall Valley, Southside Commons, along with various independent landlords.

The student housing market by Lehigh is starting to look like an oligopoly —  a market where a small number of major companies account for a substantial portion. The decisions of each company regarding price, output or marketing directly affect rivals, and entering the market may be difficult due to large capital requirements. 

Among these companies, Amicus arguably has a dominant share of market power, meaning they are able to influence prices or other market conditions rather than simply accepting the terms determined by their competition. 

They are increasingly able to charge steep prices to a student body that can afford them, and their marketing works to present their homes as modern and high quality. 

For example, one student said they currently pay $975 a month for a five-person home on East Morton Street, but that next year Amicus is increasing the rent to $1,250 for the next residents. That’s around a 28% price increase.

Students need housing near campus and face constraints that make moving farther away difficult: lack of transportation, busy schedules, and limited time to search for housing. 

Since Lehigh doesn’t guarantee housing for third- and fourth-year students, demand for off-campus housing is arguably inelastic. Since students can’t easily walk away and have few substitutes, landlords can raise prices without losing many tenants.

After sitting through several house tours and finding the home they want, students sign a lease believing they have maximized their utility, the economic term for total satisfaction. 

In reality, students cannot fully judge the house from a single tour or predict the costly problems that may arise.

A landlord has insight into a property’s maintenance history, recurring problems and actual condition. Students have little ability to verify whether the advertised quality of a property reflects its true condition.

This is an example of asymmetric information, where one party in a transaction possesses more or better material knowledge than the other, creating an imbalance in power that can be leveraged.

Amicus successfully markets their houses as modern, high-quality, and reliable. But asymmetric information results in serious consequences. 

I know students who rented an Amicus property that appeared to have no problems, but in the wintertime the insulation and heating were so poor they could see their breath inside.

Asymmetric information has implications that may already be occurring in the student housing market. 

Primarily, it diminishes overall consumer welfare. Despite spending so much money, students will experience less utility than anticipated from signing their lease. There will be more spending than necessary for the quality received when they face unexpected bills or need to find alternative places to study or socialize. 

Asymmetric information could lead to lower-quality housing overall as landlords have weak incentives to maintain their properties. If Amicus can continue to charge high rent despite serious problems, they have less competitive pressure to invest in repairs and maintenance. 

Constantly, I hear of students with cases of persistent problems in their Amicus-owned house, a sign that the overall quality of their properties may be diminishing. 

This may lead to adverse selection. When renters are not able to distinguish high-quality properties from low-quality ones, they will not pay extra for quality, and good sellers will get squeezed out. 

Though it took more time, I was able to secure a lease for $600 a month per person in a five-person home that is spacious and recently renovated. In the future, these options may cease to exist as independent landowners are pushed out of the market or realize they can charge more. 

These factors may result in perpetuating cyclical problems. With the very recent opening of the Zen Cafe by Amicus, their influence is expanding, and these problems may become more apparent in the years to come.