Monday, February 19, 2018

Housing Policy Feeds And Hides Growing Problems

An Estimated 80% Of New Units Are High-End Luxury Units
Some of the things occurring in the apartment industry have big implications for both the economy and society. Make no mistake the government is up to its eyeballs in housing and this extends into apartments. Low mortgage rates and a large amount of money being loaned might lead us to believe lower rents would be in our future but when it comes to housing policy we should not be surprised if everything is a bit off. It seems reality is starting to hit home as soaring rental costs in housing have rapidly eroded overall disposable income for the US middle class. The main driver of soaring rents seem to be following new building costs, in particular, land, material, and hard costs mostly driven by labor make it harder to build new buildings at a reasonable cost. This has resulted in some investors moving away from new construction and instead turn to rehabbing older rental stock, however, even these so-called value-add projects will also raise the rents on current tenants ever higher.

Ultimately higher cost for taxes, local fees, utilities, insurance, maintenance cost, general labor, and just about everything will be passed on to the renter. While the market has responded to rental housing needs for higher-income households, there are alarming trends that suggest a growing inability or desire to supply housing that is affordable for middle- and working-class renters this becomes very noticeable when we look at the population with very low incomes. It appears developers have little interest in, or they simply can't afford to add anything but luxury units. There's a huge unhealthy disparity in high-end rents versus low-end rents across the country and with building cost being similar between constructing high-end versus low-income units why would anyone want to deal with the low end of the market and all the trash that comes with it.
  • Currently our government is busy encouraging people who have no business owning a house to buy one regardless if they have any idea of how to maintaine  it. This government policy is to generate a slew of programs geared to assist first-time homebuyers and others with special incentives and aid. This often means anyone with any kind of credit and even getting all their income from government programs often move out of apartments to buy a house. This creates higher turnover rates and leaves the apartment manager forced to lease the unit to someone with even less income or no credit.
  • Building and providing housing to low-income people often proves to be a thankless job that nobody wants. This is beginning to put a great deal of pressure on the system as private sector landlords that do not partner with government programs suffer the abuse. Simply put, government housing policy has failed to address the housing needs of the growing group of dysfunctional individuals that are the bane of society. Few honest people desire to put up with the endless crap such a position constantly dishes out. Inventing market terms such as "sub-luxury segment" to describe basic housing only confuses rather than clarifying the issues that need to be addressed.

Housing Policy Throws Older Units "Under The Bus"
The government holds huge responsibility for a rising share of our housing problems in low-income situations because its policies avoid dealing with the growing number of tenants that are irresponsible. The main reasons for most evictions center around people not following the rules, damaging an apartment or not paying their rent. By making anyone with an eviction on their record "ineligible" for most housing programs the government shrewdly and cleverly has sidestepped having to deal with these people. The brutal truth is that government housing cherry-picks the best of the low-income renters providing them with very low rents and nice apartments and unfairly dumps those they don't want on the private sector.  Even with close to half (47%) of all renter households (21 million) pay more than 30 percent of their income for housing, including 11 million households paying more than 50 percent of their income for housing, it is not enough when we are talking about "low incomes" and the amount of damage and grief they dump upon their landlords

The unintended consequences of government policy which sidesteps responsibility for America's dysfunctional poor over time has added a great deal to our housing woes by driving up the cost of renting for everyone else. Many people do not realize that over the years government in many areas of the country have put massive disincentives in place for those interested in renting housing. Those include competing with them on many levels. This means as a "private landlord" you pay taxes that subsidize government-backed competitors that reject the least desirable tenants then ask the private sector to provide them with shelter.  This allows them to provide a better product at a lower price which often results in such projects being poorly run. One way to address or level the playing field would be to move away from public housing and give those needing housing aid "rent only vouchers" that could be used with any landlord rather than putting these people into a quasi-government ran project. 

 By bending over backward in an attempt to "protect the consumer" the government and courts are creating an army of irresponsible people who go through life exploiting loopholes in the system.

The Fact Is Lazy, Dirty, Undisciplined People Make Many Of Their Own Problems

This even goes as far as making it much harder to check the credit of someone wanting to rent in an effort to protect a person's privacy, cast aside is the fact those of us renting an expensive piece of property are putting themselves at great financial risk. Landlords find their claims are usually pursued and disputed in the small claims division of the court where getting an eviction or judgment against a bad tenant has become increasingly time consuming and expensive. Adding to this ugly reality are limits often in place that mean only a fraction of their loss will be covered, these can be as low as $1,500. It is not difficult for unpaid rents and damages to greatly exceed this amount. It must be noted that getting a judgment in your favor does not mean it will ever be paid and that these people continue to move from place to place causing havoc wherever they go.

Stories that delve into what is happening in our communities are important, I consider them as "microeconomic" images of what is occurring in many places across America. A show on Netflix titled "Renters" is a reality series about the misadventures of property managers and their troublesome renters in New Zealand, it reveals similar housing problems exist in other countries and not just in America. My attitude may be skewed by living in one of if not the lowest rent areas in America. A recent ZeroHedge article states that "attractive rents" are a relative term as the monthly dues for a tiny studio apartment in NYC will still run you $2,681, or $64.92 per sq. ft. we're pretty sure that implies the average studio is roughly 495 square feet...or about the size of the average living room in all those "fly-over states" that elitist New Yorkers love to look down upon. Now, let's compare that to rents in my area and let them speak for themselves. Roughly $550 a month for a two bedroom one bath 950 sq. ft. plays out to $5.55 per sq. ft. for essentially the same product.

Footnote;  I may have understated how much regulations also add to higher rents. In some states, the government is even debating putting the burden and responsibility for keeping occupied units clean upon the landlord. Also, it is not possible to evict someone during the Christmas Holidays in my area for any reason, you can file but no action will be taken until after the holidays are over.

1 comment:

  1. I ended up here via Zero Hedge. I recall a story from the Wall Street Journal, perhaps six months ago. A young, African-American single mom living in Baltimore, if I’m not mistaken. She wanted to purchase a home for around $70K (yes, $70K) but was having difficulty coming up with the $2,000 down payment. So there was of course a government program to provide her a no-interest loan that, of course, had a generous “forgiveness” clause.

    And I remember thinking, if you can’t come up with a $2,000 down payment on a $70,000 home, how are you going to pay for a new furnace, air conditioner, water heater...the myriad items that are almost certainly on their last legs in a home in that price range? My hunch is that programs exist for that also, but that was apparently a topic for a future heartstrings-tugging story.

    You’re absolutely correct that for some baffling reason, government seems to think renting is shameful. On the contrary, for someone whose income is low or fixed, it’s the most unpleasant-surprise-free option. My wife and I earn a middle-class wage and keep a sizable emergency fund on hand, since every time a journeyman enters our home it’s several hundred bucks just to diagnose the problem. What’s the incentive for us when there are countless examples of what we’ve striven for being handed to others?