Freakonomics: Why Rent Control Doesn’t Work

There’s no doubt that man communities in the United States, including here in the Piedmont Triad, are dealing with housing affordability challenges. There’s also no doubt that elected officials in cities, counties and states are looking for possible solutions to the affordability problem. Unfortunately some of the solutions that, on the surface, seem to make sense can actually make the problem worse.

One of the solutions that many elected leaders consider is rent control. Just this year Oregon became the first state to enact a statewide rent control law. Some cities, like New York, have long had rent control laws and yet their residents still have some of the highest rents in the country. So what gives?

That can be a complex question to answer, but thankfully the folks at Freakonomics have produced a show that does a great job of explaining why rent control actually makes the affordability challenge worse, not better. It’s well worth a listen so here’s a link to either listen to the podcast or read a transcript:

Freakonomics: Why Rent Control Doesn’t Work

And here’s just a small excerpt from the show:

DIAMOND: When you pass rent control, the landlords of the property suddenly getting covered by rent control are losing so much money, they no longer really want to rent their apartments out at the prevailing new prices, so they decrease their supply of rental housing to the market. And if there’s less supply, that’s going to drive up prices. 

DUBNER: Okay, so, let me just make sure I have it pretty straight. You find evidence that rent control increases gentrification, one component of which is the displacement of low-income tenants. On the other hand, you also find evidence that low-income people, including minorities — at least those who are in rent-controlled units already — they’re likely to disproportionately benefit from rent control.

So, if I’m an affordable-housing advocate, I might say, “Oh, fine, fancy Stanford professor — who I’m sure has some kind of great income and/or housing subsidy and/or situation — I don’t care that some landlords are suffering. I don’t care that the policy is having some downstream effects that you don’t like. I need to make sure that low-income people aren’t going to get a rent increase of 50 percent overnight.” So, how do you respond to that argument?

DIAMOND: So, when you think about those initial tenants, that’s the best bet you’re going to get for the benefits of rent control to low-income tenants: the people that are already in the housing. But even though we find that those tenants are much more likely to stay in their apartment, when we look 10, 15 years later, the share of those 1994 residents that are still there is down to 10 percent or so. So 90 percent of them no longer live in that initial apartment.

And it’s that next low-income tenant that wants to live in the city, that low-income tenant is going to have a very hard time finding an affordable option, because now there’s going to be less rental housing, the prices that that low-income tenant are going to face when they want to initially move in are going to be higher than they would have been absent rent control.

DUBNER: I’m curious how generalizable you think your findings from San Francisco are for other cities.

DIAMOND: I would suspect that the actual quantitative loss of rental supply or benefits to the tenant will depend a little bit city to city, but I think the qualitative takeaway that landlords are savvy and are going to work hard to not lose money on their investments, I think is a very general point. 

NAA’s Approach to Finding Solutions to Housing Crunch Garners Attention

Over the past couple of years, the National Apartment Association has increasingly focused on conducting research that helps inform the organization’s approach to engaging governments at the federal, state and local level. That work has gained some positive attention in the real estate development world, as evidenced by this article in BuilderOnline.com:

Not for nothing, the National Multifamily Housing Council and National Apartment Association have recognized–via research the two organizations conducted with Hoyt Advisory Services–that developers will need to add 324,000 units annually for the next 12 years to make up for lost time and keep up with new household formation.

The NAA and NMHC have gone so far as to develop a Barriers to Apartment Construction Index, which scores 50 metro areas on a scale of difficulty posed by regulatory and space constraints. A score of 19.5 ranks as the most difficult market to add apartments, Honolulu.

It seems evident that multifamily developers have jumped a step ahead of their single-family for-sale siblings, both in investing in research that begins to build evidence around the scope of the shortfall and developing scenarios for getting beyond the current impasse, which is a lose-lose-lose proposition…

One way that it appears multifamily players seem to recognize as a solution–better on the whole than single-family players–involves a form of collaboration that’s been around for as long as people have been forming communities as a way to live and conduct business: public-private partnership.

Newly Minted Tax Bill Likely a Positive for Apartment Industry

According to this article in the Wall Street Journal, the apartment industry fared better than the for-sale housing market with the tax bill just passed by Congress. From the article:

Affordable-housing developers, who had feared that provisions in the House bill would curb production in their industry by up to two-thirds, now predict the impact of the final legislation will be modest. Meanwhile, market-rate rental owners stand to benefit from a slightly lower corporate tax rate and increased demand for rental housing…

Apartment owners say they also could benefit from a tax code that no longer favors owners over renters now that the deduction for mortgage interest is blunted by a higher standard deduction

“John Q. Public has been sold by the home-building industry that it’s better to own than rent because you’re getting subsidized by the government because you have all these deductions,” said Ric Campo, chairman and chief executive of Camden Property Trust, a real-estate investment trust that invests in apartments. “That equation will change.” Mr. Campo estimates his typical tenant will pay about $1,500 less a year in taxes.

Barbara Byrne Denham, a senior economist at real-estate investment-research firm Reis Inc., said the tax bill could be a particular boon for rental markets in suburban areas with high property taxes. The bill caps the amount of state and local taxes that homeowners can deduct at $10,000, which could give some families an incentive to rent longer and enjoy the good schools and other services those areas provide without having to foot a higher tax bill.

Industry representatives also came out in support of the bill. The National Apartment Association (NAA) and National Multifamily Housing Council (NMHC) released the following statement:

“The National Multifamily Housing Council and the National Apartment Association applaud Congress on the passage of tax reform legislation and are pleased that the priorities of the apartment housing industry were largely addressed in the final bill. This legislation will help the multifamily industry meet growing demand to build 4.6 million new units by 2030. As the focus now changes to implementation, NMHC/NAA will continue to analyze and assess the impact of specific provisions on the multifamily industry.”

The Wall Street Journal article also looked at the impact the tax bill is expected to have on affordable housing development. While the changes are still expected to suppress new development slightly, it’s not expected to have the drastic effects that earlier versions of the bill would have created. The full article provides more background on the issue.

Apartment Industry At The Tax Reform Table, Not On It

Earlier this week the National Apartment Association launched Protect the Lease, a grassroots campaign to inform members of Congress about the importance of the apartment industry as they take up the issue of tax reform. In an interview with Multifamily Executive, NAA President & CEO explained why the initiative is of vital importance for the industry:

“Tax reform is a huge issue for our members and something that they’ve been talking about ever since it first appeared on the horizon,” Pinnegar told Multifamily Executive. “The Tax Reform Act of 1986 really destabilized commercial real estate and severely impacted the apartment industry. It’s one of those things that people who were in the industry and actually had to survive the downturn that was created…it’s a very real issue for them and they’re very concerned on what that will do to the industry.” 

Pinnegar says it’s crucial for the NAA and its members to make their feelings on this subject known early and often. “Tax reform is a variety of issues and once it’s introduced it’s going to change and move over time,” he says. “So we’re going to have to have an ongoing conversation about aspects of how various changes would impact the industry.”

In grassroots fashion, he’s encouraging members to write Letters to the Editor in their local newspaper and host property tours for elected officials in order to detail the potential impacts of tax reform first hand.

According to the NAA, the apartment housing industry provides more than 20 million apartment homes for nearly 39 million Americans and supports jobs for 12.3 million people. Together the apartment industry and its residents annually contribute $1.3 trillion to the U.S. economy.

For more information about the campaign visit www.protectthelease.com. In the coming weeks and months, there will also be opportunities to participate through PTAA so stay tuned!

A Day in the Life of a One-Day Lobbyist

PTAA’s own Mary Gwyn of Apartment Dynamics wrote a piece for the National Apartment Association about her experience at NAA’s Day of Lobbying in March:

It is an honor that we citizens can impact government, lawmaking and regulations in this country. I am always awed when I take advantage of this right and opportunity to express my opinions to our leaders on issues that impact our industry. Beyond our votes, if our voices are not heard, others may sway our leaders in directions we don’t agree with and that are counter to our business and the affordability of housing. A Day of Lobbying each year is very little to give to see that our voices are heard. It’s a great lesson in civics!

One of my Congressional visits was to Rep. Mark Walker (R), a freshman from North Carolina. He came from outside the political circles, serving as a pastor in Greensboro prior to running for Congress.

A group of eight of us gathered to meet with him, three of whom were first-time lobbyists. We filled the hall while we let his staff know we were there for our appointment, but there was some confusion – no appointment on the calendar. And although we had emails from his office, there was no need to pull them up. In fact, they quickly found a way to “squeeze” us in before the Congressman’s next appointment.

We were taken from his small but sunny outer office, to a rich wood-paneled room. The walls were covered with pictures and sayings that demonstrated his beliefs and interests. He crowded all eight of us and his Legislative Assistant into the room. Three of us were from his district, and introduced ourselves. His eyes were intent on each of us as we spoke.

You really should read the whole thing because it eloquently describes why participating in government relations activities like the Day of Lobbying is so important, and how it can enrich your career.

It’s a Two-fer: Diamond Awards and National Apartment Housing Day

Tonight is PTAA’s annual Diamond Awards banquet, which is a combination of the Oscar, Emmy and Tony awards for the local apartment industry. The event is SOLD OUT which means we’ll have 530 people celebrating the best and the brightest the apartment industry has to offer.

Today is also National Apartment Housing Day and by highlighting it at tonight’s Diamond Awards PTAA will be joining the 170 apartment associations affiliated with the National Apartment Association (NAA) to promote the tremendous contribution that the apartment industry makes in housing Americans. Here’s how the National Apartment Association describes it:

National Apartment Housing Day is the apartment housing industry’s opportunity to showcase its significant impact in communities across America by:

  • Contributing to the nation’s economic strength. Apartments and their residents contribute $1.3 trillion to the economy and support 12.3 million jobs.
  • Growing career opportunities. Today, 469,000 apartment professionals work in fields such as property management, leasing and maintenance. Beyond supporting today’s 20 million apartment households, new career opportunities await – by one estimate, 4.4 million new renter households will be formed within the next decade.
  • Giving back to communities. In 2016, the industry infused $158 million in philanthropic and charitable contributions into communities across the nation.

“Today we welcome America home,” says National Apartment Association President & CEO Robert Pinnegar, CAE. “Apartments offer Americans flexibility and choice, but current demand for apartments outstrips supply. A continued supply of affordable housing requires supportive legislation and regulations that make it easier to construct and rehabilitate apartments. That, more than anything else, will help keep rents reasonable for Americans.”

Post-Election Outlook for Apartment Industry is Mixed

Greg Brown, the National Apartment Association’s VP of Government Affairs, shares his thoughts on what the results of this year’s election means for the apartment industry and it’s well worth the read. Here’s a taste:

For our part, the outlook remains mixed for the apartment industry. Regulatory reform and independent moves by the President-elect to pull back on regulations issued by the Obama team will likely address several areas of concern such as Waters of the United States, the overtime rule and IRS rules on valuation of family-owned businesses. Bigger-picture issues such as the future of Fannie Mae and Freddie Mac, some areas of tax law and immigration reform have the potential to cut both ways for owners and operators of apartment homes. Thus, it is critically important that everyone get involved in NAA’s Advocacy365 program and commit to carrying the message of the apartment industry to their representatives in Congress.

Read the whole thing here.

You can also hear an interview with Greg on the Not a Complex Podcast here.

Episode 4: Interview With Apartment Industry’s Top Government Affairs Expert; Upcoming Events

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In his role as the Senior Vice President of Government Affairs for the National Apartment Association, Greg Brown is one of the apartment industry’s most visible advocates in Washington, DC. This episode of Not a Complex podcast features an interview with Greg, during which he talks about the most pressing issues facing the industry, the potential impact this year’s election will have on the industry, and his favorite movie.

Before the interview we also provide a quick update on upcoming PTAA events. So sit back, relax and hopefully learn a little something.

Subscribe via: iTunesStitcher

Show Notes:

NAA’s Government Affairs Website Section

NAA’s Advocacy Website Section

IMDB Page for Greg’s Favorite Movie

PTAA’s Upcoming Events Calendar

More on Reasonable Accommodation Requests for Animals

There’s a good post at the NAA blog about reasonable accommodations for animals, which as most of you know is a growing issue thanks to the increased use of emotional support animals.  One consequence is that apartment management companies are having to adopt more flexible policies regarding animals their residents want to have in their apartments. From the article:

Per U.S. Department of Housing and Urban Development (HUD) guidelines, a disabled resident should be given the opportunity to request any animal that reasonably affords such person equal opportunity to use and enjoy their dwelling. Owners are required to engage the resident in an interactive process in which the housing provider and the requester discuss the requester’s disability-related need for the accommodation and possible alternatives.

In years past, it seemed to be the status quo for apartment housing providers to adopt bright-line rules. These rules allowed for predictability in outcomes and restricted discretion among on-site staff to minimize the risk of fair housing discrimination complaints. While this used to be the case, now managers are expected to make decisions on a case-by-case basis depending on a resident’s unique set of needs and circumstances in accordance with the mandated interactive process.

The article contains a link to NAA’s Toolkit on Emotional Support Animals, and also references an upcoming webinar on the subject:

In an effort to continue outreach and education, NAA is hosting a webinar on this issue on Thursday, October 13 at 3 p.m. ET. NAA has enlisted the expertise of Katie Wrenn, Regional Training and Marketing Director at Milestone Management, to share the member perspective and her experiences in dealing with reasonable accommodation requests day-to-day. In addition to Ms. Wrenn’s expertise, Kirk Cullimore will discuss the forms that he was instrumental in getting approved by HUD and share lessons learned from his experience in litigating these cases throughout the investigative process.

*  Edited to add: Chris Loebsack with Loebsack & Brownlee, PLLC has graciously agreed to present a pre-trade show seminar, Emotional Support Animals and Reasonable Accommodation Requests, on October 25, 2016 from 4:30-5:30pm at the Greensboro Coliseum. Not only will you earn 1 CEC for attending, but you’ll have Chris available to answer any questions you may have on this hot topic. Register here.

NAA Introduces New President and CEO

The National Apartment Association’s Board of Directors has announced who will succeed Doug Culkin as President and CEO upon his retirement at the end of 2016. Here’s the text of the announcement from NAA Chairman Marc Ross:

As you know, the Doug Culkin, our current President and CEO, announced some time ago that he intended to retire at the end of this year. As a result, National Apartment Association (NAA) formed a CEO Search Committee to secure the next staff leader of the organization. The Committee selected Spencer Stuart, an international executive recruiting firm, to conduct a nationwide search. Hundreds of candidates expressed interest in the position, and the Committee culled the applicants down to a final recommendation.

I am happy to announce that on August 30, 2016, the NAA Board of Directors approved the Committee’s recommendation that Robert “Bob” Pinnegar, the current Executive Vice President and COO, be selected as the new President and CEO of the NAA. Bob brings more than 20 years of experience and commitment to the apartment housing industry. In his role as an association executive with a strong local affiliate and nearly 5 years with NAA, he is uniquely positioned to lead the Association and the industry forward.

The transition will occur during in November and December of this year allowing adequate time to ensure NAA’s smooth transition into 2017.

Additionally, I would like to thank the members of the CEO Search Committee:

  • Tom Beaton, CAPS, CPM®, Search Committee Chair, 2015 NAA Chairman, Dolben Company
  • Cindy Clare, CPM®, NAA Chairman-Elect, Kettler Management
  • Mike Clark, NAA Region 6 Vice President, Alpha-Barnes Real Estate Services
  • Mike Clow, CPM®, NAA Treasurer, Greystar
  • Josie Eatmon, 2015 AEC President, Triangle Apartment Association
  • Kellie Jackson, CAM, CPM®, NAA Region 9 Vice President, Milestone Management
  • Jeff Lowry, CAPS, NAA Vice Chair, Madera Residential
  • Diana Pittro, NAA Region 3 Vice President, RMK Management Corporation
  • Tony Sculthorpe, CAS, 2015 NSC Chairman, CSC ServiceWorks
  • Ron Shelton, CAPS, 2009 NAA Chairman, Amalgamated Management Corporation
  • Jerry Wilkinson, CAPS, CCIM, 2012 NAA Chairman, The Wilkinson Group, Inc.

I hope you all will join me in looking forward to a continued strong future for NAA with Bob at the helm.