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NAHB Cries Apartment Shortage, We Call it a Scandal

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Ah yes, talking points

house-constructionThis week, the National Association of Home Builders continues repeating the talking points that sound something like “we can’t get funding so there will be a housing/apartment/condo/townhome shortage and the housing recovery will fail and we’ll all be in another crisis.” Yawn. Yesterday, we reported NAHB as noting that “the current financial situation has led to sharply decreased construction of communities that serve the market. Without a chance in the availability of capital for development and construction, there could well be a shortage of such housing when it is most needed.” We called foul then.

Apocalypse now?

Today, we share with you NAHB’s newest rally cry that they “‘desperately need lenders to begin financing apartment communities again,’ said NAHB Chief Economist David Crowe. ‘The vacancy rate for apartments is elevated now, but as the economy recovers and jobs return, the people who’ve been doubling up with relatives and friends will want a place of their own – and there may not be one available.'” Again, we have to cry foul. NAHB is just doing their job by rallying for the industry, but we have to note that with foreclosures at a historic high, by the time the economy turns around, there will be more than enough houses for rent. It’s not like there’s a population boom here, there are options for renters other than multi-family.

While it is true that the home builders big and small have been kicked in the gut by the economic crisis, they didn’t scream loud enough soon enough, as it seems that bailout open season is over and Uncle Sam’s wallet has snapped shut. It’s unfortunate and I hate seeing people I know get laid off in the building and construction industries, but their Association failed them by just NOW crying shortage. Sure, they’ve whispered it here and there, but reading the last several news releases on the NAHB site shows a consistent set of talking points indicating a communications plan they’re putting into place, but is it too little too late?

Rental rates, vacancy rates and the sky is falling!

In an article about how investors will profit wildly from the distressed multi-family properties, Dr. Victor Calanog of National Real Estate Investor notes that “the national vacancy rate hit 8% by the end of the year, up from a previous high of 7.8% in 1986. Asking rents fell by 2.3% through 2009, the largest annual decline on record. Effective rents fell by 3.0% for the year, more than triple the worst decline previously recorded in 2002.”

According to CB Richard Ellis, apartment vacancy rates are projected to remain high through 2010 and rent growth won’t resume until 2011.

Remember when you learned about statistics in high school and your teacher warned you that the average or the median is the most reliable number? I don’t think NAHB took that class, because the apocalyptic numbers being thrown around seem to either be on task for their screaming bloody murder to the White House or they took the most extreme statistic and printed it for public consumption:

Per NAHB, “Industry experts expect demand to outstrip current supply by mid-2011, with increasing shortages of rental housing through 2014. This is very likely to increase market-rate rents as much as 8 to 10 percent per year in 2011 and 2012, and by 4 to 7 percent per year thereafter through 2015.”

Oh really? I’ll get to that in a second, but let’s get the history of why this is ludicrous first…

NAHB can actually do something more productive

So now, on top of screaming bloody murder, NAHB is positioning renters to get used to perceived shortages AND to prepare to bend over for rent increases that their crystal ball predicts will escalate at historic rates because, you know, all of those people shacking up at mom and dad’s house are too stupid to look anywhere but their local Apartment Guide.

NAHB could use this down cycle as an opportunity to pressure the multi-family leasing sector to lose the high ended attitude that everyone on the planet has a 700 credit score, because as people come out of foreclosures and evictions due to past layoffs etc., they will be declined unless someone advocates for qualification criteria as an industry to be softened to a more realistic standard matching today’s economy.

As a former property manager for one of the largest REITs in the world, I’ve seen first hand how overaggressive qualification criteria can hurt renters (also known as PEOPLE) and eventually property management that is overly cocky, and ultimately the REIT portfolio. And don’t even get me started on how arbitrary market rates are, I’ve seen how they’re created and it’s a process akin to putting a monkey in a room alone with a calculator… we call that scandalous. I’ve also had the displeasure of working at one of the largest commercial developers in America and there is no such thing as people or communities, there is just a financial report that determines if a property will sell or not, that can be read in thirty seconds and enrage or soothe any developer who lives in bed with the bank.

Fill the units you currently have- you have ridiculous occupancy rates that agents can’t place renters into that they should be able to. Criminal history? Fine, decline. Low income? Fine, decline. 480 credit score? Fine, decline. Fill these units and maybe lending will loosen up a little bit for your future projects… we’re not suggesting to fudge criteria, just help out those sad little victim people your Chief Economist mentions that are having to live with family and friends. NAHB is, after all, so concerned with them, right? Or is that just a line that looks good on a press release?

I predict however, that NAHB won’t advocate for the rental consumer that keeps the multi-family sector alive, nor will they make a solid move toward giving banks a REAL reason to lend again, nor will they produce realistic statistics until the recovery is well on its way and they’ve realized that their throwing a temper tantrum isn’t going to preemptively raise rents or get them a bailout.

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16 Comments

16 Comments

  1. Matt Stigliano

    January 27, 2010 at 7:25 am

    Lani – Like an professional trade association, the NAHB looks out for numero uno. The home builder. I fear that the slow down in construction will lead to yet another whirlwind of hammer and nails in the near future by builders. They’re itching to work on something – they need to to feed their families.

    Overbuilding is not the answer. If given the chance, builders would erect more units. Units that would sit vacant while foreclosures that have been converted to rentals do the same. If all these people are living with mom and dad, they’re not going to suddenly rush to fill the new units.

    Much like any industry, builders need to see buildings erected in order to pay the bills. What help is it to them to see renters renting a home? Their assumption that mom-and-dad-basement dwellers will flood the market if nothing more than speculation as well…speculation, where have I heard that word in the recent past?

    • Lani Rosales

      January 27, 2010 at 9:47 am

      All good points and I couldn’t agree more!

  2. Felicia Adams

    January 27, 2010 at 8:36 am

    Lani,
    As usual, I applaud your take on the current trends/news! This post is another example of how you are able to cut through the PR/spin/glitz and call the market for what it is. ITA that there is a need for softened credit criteria to get these moving. Good people (not just deadbeats) have taken a hit on their credit scores with the current economic situation, layoffs, etc. Let’s refill what we have and responsibly build more.

    • Lani Rosales

      January 27, 2010 at 9:48 am

      You hit the nail on the head- responsible. I’m not saying the building industry should shrivel up and go away, but that during a down cycle they really could champion something, ANYTHING instead of push an expensive communications plan that won’t get them anywhere.

  3. Thomas A. B. Johnson

    January 29, 2010 at 12:00 pm

    I’ve been scratching my head about the rental market and you verified what I could not understand. The REITs are cherry picking renters to their own detriment. I could not understand why, but I guess we just chalk it up to stuck on stupid. That said, this REALTOR is focused on tenants in REIT owned apartments as the last storehouse of home-buyers with good credit without a house to sell. REIT owned properties have high rents to satisfy the spreadsheet so “Why rent when you can buy” is a pitch where rent equivalency is not a tax adjusted calculation – it is a real deal.

  4. April Groves

    January 31, 2010 at 2:42 pm

    I printed this article out – it needs a highlighter it is that good!

    What the numbers don’t account for are the number of renters who will go back to being homeowners when the resale numbers fall. A growing number of tenants are folks who would have already bought a house if they could just sell the one they have back home. Those numbers will canx some of those doubled up and moving back out. Therefore, I think the rental market will experience a bit of a boost, but I ain’t covering my head watching for a falling sky.

    And tenant qualification is not just for the well being of the owner but for the tenant as well. As the manager of various multi family complexes, it is a funky chicken kind of dance that is done to make sure that our qualifications are reasonable enough to promote occupancy while qualified enough to ensure other tenants quiet enjoyment and owner feasiablity.

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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aging housing inventory

The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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zillow move

Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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