Nov 14

If you want to share this or any other housing concerns with your elected officials, go to democracy.io and enter your address.  The site allows you to write to both your US Senators and your Congressperson at the same time without searching for their emails or finding who represents you.

We should be asking for housing assistance to prevent the failure of both renters and housing.

If you do write – I’d appreciate if you send me a copy to Tim@ApartmentsMilwaukee.com

Notes on housing, supported by reliable sources such as Census.gov

74.4 % of rental properties owned by individual investors. Source: https://www.census.gov/newsroom/press-releases/2017/rental-housing.html and in an easier to read format in this report from Harvard: https://www.jchs.harvard.edu/blog/who-owns-rental-properties-and-is-it-changing


55% of rental units as owned by part-time landlords: https://www.avail.co/education/articles/state-independent-landlords-2017


Rent debt will be $25-34B by January 1st. https://www.ncsha.org/resource/current-and-expected-rental-shortfall-and-potential-eviction-filings/ 

roughly 10 – 14 million renter households — home to 23 – 34 million renters — were behind on their rent by a total of roughly $12 – $17 billion as of September 14, 2020.

These renters will owe $25 – $34 billion by January 2021,
(from a chart just below the P1 fold)

More State-Specific info at: https://assets.aspeninstitute.org/content/uploads/2020/08/chart3_fsp.png

Local economic multiplier of rent payments from a report by Brookings Inst.
 

RENT HAS IMPORTANT MULTIPLIER EFFECTS IN THE LOCAL ECONOMYRent checks don’t just line the pockets of fat cat landlords—they also contribute to essential government services and other workers’ wages. If many households are simultaneously unable to pay rent, the economic impacts will be felt throughout the local economy.

The first entity that gets paid by a monthly rent check isn’t the landlord—it’s the local government. Property taxes have a higher priority even than mortgages; if a landlord falls behind on both property taxes and mortgage payments, the local government’s claim supersedes the lender’s.

Cities and counties rely on property taxes from all their constituents—individual homeowners as well as owners of apartments, offices, and other nonresidential properties—to cover the cost of providing public services. Although local governments could defer property tax payments during the current crisis, the pandemic is already stressing local government budgets. Cities are front-line providers of health care and emergency services, and also need money right now to feed children whose public schools are shut down and care for older adults and vulnerable populations.

https://www.brookings.edu/blog/the-avenue/2020/03/25/halting-evictions-during-the-coronavirus-crisis-isnt-as-good-as-it-sounds/ 

Census reports that the average rental unit generates $1,198 per unit per year in wages.
https://www.census.gov/data-tools/demo/rhfs/#/?s_byGroup1=12&s_tableName=TABLE4&s_type=2
Mean Payroll Costs for Employees Per Housing Unit 1,198

We can fix evictions for what it costs to allow the problem to continue
https://assets.aspeninstitute.org/content/uploads/2020/08/Evictions-Data-Update-August.pdf

Providing shelter and services to a family experiencing homelessness can cost local governments $10,000,[1] which is more than the $9,120 average annual cost of one housing voucher to the federal government[2] 

[1] Evans, William, James Sullivan, and Melanie Wallskog. “The Impact of Homelessness Prevention on Homelessness.” Science, 333:6300 694–6999, 2016. https://science.sciencemag.org/ content/353/6300/694.full.

[2] U.S. Department of Housing and Urban Development. “Snapshot of Housing Choice Vouchers, 2016,” June 2018, https://www.huduser.gov/portal/elist/2018-june_08.html

Impact of the 2008 housing crises on Milwaukee

The following is from a letter we wrote to Milwaukee’s mayor.  It outlines some of the economic factors of rental housing and the harm that will come if there is a mass failure.  In 2008 smart money could see prices rising over a two and a half year period at a rate not sustainable by wages.   In 2020 the economy was screaming, then two weeks later it stopped. The suddenness of the event is a recipe for disaster.

If action is not taken to avert this, the aftermath of 2008 will look like a walk in the park on a sunny day.


A December 2019 Milwaukee Dept of City Development report  stated “The economic impact of the Great Recession and mortgage foreclosure crisis has had a significant, detrimental, and ongoing effect on City households.” DCD 12/2019.[ii]  Foreclosure filings in Milwaukee County were three times higher in 2009 than last year.[iii] From 2008 through 2010,16,000 Milwaukee properties were in some stage of foreclosure by lenders and the city.[iv] In those two years, the tax base lost almost $2 billion in value, with a resulting $16.7 million loss of tax revenue.  The resulting demolitions had a large impact on the City’s budget due to the cost of razing along with the impact on the property tax and municipal services collections.[v] The neighborhoods where those properties were located suffered long-term damage.  We continue to feel that impact even today, and we certainly hope to avoid a similar outcome in the future.

[ii]Section 2: Housing Needs and Demand Housing Affordability Report Department of City Development  |  December 2019 https://storymaps.arcgis.com/stories/eb043b089173407aa469eba948dd9601

[iii] State’s Foreclosure Rates Have Plummeted » Urban Milwaukeehttps://urbanmilwaukee.com/2019/07/11/states-foreclosure-rates-have-plummeted/

[iv] www.sewrpc.org/SEWRPCFiles/HousingPlan/Files/foreclosure-in-milw-progress-and-challenges.pdf

[v] Tom Barrett wants to spend $2.4 million on home demolition, rehabarchive.jsonline.com/news/milwaukee/barrett-wants-to-spend-24-million-on-home-demolition-rehab-b9933176z1-211401301.html/

Nov 03

https://www.jchs.harvard.edu/blog/who-owns-rental-properties-and-is-it-changing

Institutional investors own a growing share of the nation’s 22.5 million rental properties and a majority of the 47.5 million units contained in those properties, according to the US Census Bureau’s recently released 2015 Rental Housing Finance Survey (RHFS). The changes are notable because virtually all of the household growth since the financial crisis has occurred in rental units, with more than half of the growth occurring in single-family rental units.

According to the RHFS, individual investors were the biggest group in the rental housing market in 2015, accounting for 74.4 percent, or 16.7 million rental properties, followed by limited liability partnerships (LLPs), limited partnerships (LPs), or limited liability companies (LLCs) (14.8 percent); trustees for estates (4.1 percent); and nonprofit organizations (1.6 percent) (Table 1). However, because the share of rental properties owned by individual investors tends to decrease with the property size, individual investors owned less than half (47.8 percent) of rental units, followed by LLPs, LPs, or LLCs (33.2 percent), trustees for estates (3.3 percent), real estate corporations (3.3 percent), and nonprofit organizations (3.2 percent).

A 2017 report puts 55% of rental units as owned by part time landlords
https://www.avail.co/education/articles/state-independent-landlords-2017

https://www.globest.com/2020/07/30/small-apartment-landlords-worry-about-payments-as-pandemic-continues/

Small “mom and pop” landlords, often defined as landlords who own or manager fewer than 20 units, reported lower rent collections in 2020, with 25 percent of them borrowing money to cover operating costs, according to a survey by The National Association of Hispanic Real Estate Professionals and UC Berkley’s Terner Center for Housing Innovation.

In the survey, about 58 percent owned or managed 1-4 units, and 25 percent owned or managed 5 to 19 units. The majority of respondents were in California, Texas and Illinois. About 67 percent of these landlords perceived their rental properties as a source of retirement income.

Sep 09

Axios has a good article on the health of small businesses, well if you read it good is not a thought that comes to mind…

Failure of small businesses is bad for both commercial landlords, and because 49.2% of America’s private-sector employees work in a small business, it will impact the long term viability of residential rentals as well.

Source: https://www.axios.com/small-business-confidence-goldman-sachs-74ba6e69-ad0e-4cb5-bee3-d03445b2a30e.html

From the SBA

Small businesses make up:
99.7 percent of U.S. employer firms, 64 percent of net new private-sector jobs, 49.2 percent of private-sector employment, 42.9 percent of private-sector payroll, 46 percent of private-sector output, 43 percent of high-tech employment, 98 percent of firms exporting goods, and
33 percent of exporting value.

Source: U.S. Census Bureau, SUSB, CPS; International Trade Administration; Bureau of Labor Statistics, BED; Advocacy-funded research, Small Business GDP: Update 2002- 2010, www.sba.gov/advocacy/7540/42371

Aug 30

A published research paper that found:

“Our research shows that in order to keep rental housing affordable and sustainable for low-income families, lawmakers have to walk a fine line in determining what will benefit the tenant and what may ultimately be detrimental to them,” Shen said. “On the surface, strict landlord regulation sounds good for tenants, but our paper points out, the solution isn’t that simple. The research suggests that conventional thinking on the issue of more regulation may have the opposite effect on tenants.”

“Though advocating for tenant rights seems noble and the right thing to do, the resulting consequences could have a devastating impact on this vulnerable population,” Shen said. “Our research indicates that if landlords aren’t allowed to evict, rent will likely increase to compensate for their losses. The housing supply would diminish, though the demand would still exist. These landlords may choose alternative investments if owning property is no longer feasible. A reduced housing supply would mean less competition, which would drive up the cost of rent for everyone.

Coulson, N. Edward and Le, Thao and Shen, Lily, Tenant Rights, Eviction, and Rent Affordability (July 4, 2020). Available at SSRN: https://ssrn.com/abstract=3641859 or http://dx.doi.org/10.2139/ssrn.3641859
Aug 23

Bold highlights are mine:

https://www.zillow.com/research/zillow-weekly-market-report-27151/

 

Previous Zillow research found that this recession’s wave of layoffs disproportionately affected renters, and now the unemployed are having even more trouble paying their bills. The National Multifamily Housing Council’s rent payment tracker showed a two-percentage point increase in the share of renters who had not paid August rent as of August 13, compared to the same time in 2019. While many renters are currently covered by eviction moratoria, very few can expect rent forgiveness or extensions on the same scale, or structured similarly, to the forbearance policies that have protected homeowners. Consequently, many renters are moving out and looking for other shelter when unable to pay rent. Millions of young adults, predominantly 18-25 year-olds, moved back in with their parents or grandparents this spring. And as detailed above, many of the most financially secure renters in the Millennial generation are taking advantage of low mortgage rates to jump into homeownership. 

Jun 17

https://www.cnn.com/2020/06/16/success/rents-are-dropping-us-cities-coronavirus/index.html

“I’m seeing rents are down 10% to 20%, with higher-end and luxury units taking the biggest hits,”

Considering that the typical owner’s net operating income after mortgage, taxes, insurance, utilities, repairs, employees, is 7-9% there will be a lot of failures, of both owners and municipal budgets.

Apr 30

https://www.naahq.org/news-publications/explaining-breakdown-1-rent

Apr 09

As an industry, rental housing providers must be present to PREVENT harmful legislation, because it is much more difficult to be made whole after the fact.

If the government does something that causes a large number of owners to fail, those owners will not have financial resources to fight back. They will be merely trying to feed their families.

This is not just bad for the owners that lost, but bad for tenants as well. In the years after the 2008 crash, there was a significant consolidation of rental ownership in Milwaukee. The city went from around 36,000 individual owners down to ~23,000 at a time that homeownership plummeted. Today Milwaukee has 41.8% owner occupancy. Nationwide that number is 65.1%.

Consolidation and owners doing what they could to survive the ’08 crisis has driven rents up significantly.

Those owners that come out of 2020 intact will likely be stronger than today. But not necessarily as municipalities will suffer more financially this go-round than in 08.

Owners that don’t fare well in the next few months will continuously be looking over their shoulders, hoping Jeff Bezos’ latest robot doesn’t take their job at the Amazon warehouse.

Or our government can keep printing trillions of dollars of new money and when end up like Venezuela where a quart of milk costs 4,200 bolivares, 11% of the monthly minimum wage. In 1990, a VEN bolivar was nearly equal to USD.

Hyperinflation, while bad for working folks, is good for those who enter it with assets and debt. Your debt remains in old dollars that you are paying off with new, cheaper dollars. Your assets acquired before the inflationary cycle will rise in value.

Look at what happened in the US during the late seventies and early eighties with annual inflation and interest rates on standard bank loans hit 18% in 1980. I was buying everything I could get my hands on. It was a risky, but good play when interest rates corrected and I could refinance at low rates like 12% APR. Yes, you can make money on rentals financed 90% at 18% APR. But you do have to pay almost nothing.

Look at average new home prices Dec 1977, when I started in real estate, $52,700 to Dec 1987 at $111,800.

Then look at historic interest rates. They were “cheap” in 1975 at 8.8% and cheap again in 1986 at 9.3% with a belly of 18.6% early 1981.

Yes, I do laugh when I hear investors fretting over half percent fluctuations in rates.

I’ll end this overly long post with there will be a huge risk to some, but also huge opportunities for others in this economy that we’ve never seen before and have no idea how it will turn out.

Feb 04


For many reasons I’ve felt that much of commercial real estate is a poor investment. From Amazon keeping people out of stores, to increasing work from home arrangements. My daughter does an important job for AT&T. She has worked from her living room for many years, since they closed their main Brookfield office.

Now there is one more reason for companies to abandon commercial space – pandemics .

“It’s a good opportunity for us to test working from home at scale,” said Alvin Foo, managing director of Reprise Digital, a Shanghai ad agency with 400 people that’s part of Interpublic Group. “Obviously, not easy for a creative ad agency that brainstorms a lot in person.” It’s going to mean a lot of video chats and phone calls, he said.

Bloomberg 2-2-2020

Dec 14

The is a great, worth the time to read, article on landlord regulation over at BiggerPockets.

preload preload preload