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No...I honestly think there is an ethical dilemma/conflict of interest on the wealthy city officials, community members, and liberals who claim to care about affordable housing, but refuse to reform racist single-family housing zoning because they fear their own property values decreasing...it's a classic case of the Have's vs the Have-Nots.
While I agree that that is a dilemma, do you take no fault if you are the group that buys a asset in the middle class area and are increasing rents 15-20% because everyone else is?
As someone else said, as long as the landlord is taking care of tenants and the building and running things well, I see no ethical issue. Welcome to capitalism.
Entirely agree that the onus for the housing crisis lies entirely on the government. You can't expect landlords and developers to bear the cost of affordable housing in a free market just because their business happens to be one that impacts everyone. Nobody is at the grocery store protesting the fact that their grocery bill is up 15% from last year, are they?
When municipal governments won't implement proper tax incentives to encourage affordable housing (note that I didn't say "can't", there are many places that have done this well), it's hard to feel guilty for operating your business to the best of your ability. My company and any other with a brain will happy supply more affordable housing if there are economic incentives there to do it.
Toronto is a great example of an absolute failure on a government level in terms of encouraging affordable housing. They drone on and on about the need for it, but then go and institute inclusionary zoning, requiring any new development in key areas to include a certain percentage of units as affordable with no benefit to the builder. Beyond that, they then go and announce a proposed 48% increase in development charges which are already the highest in the country. If the latter change goes through, builders will be running for the hills and the crisis will only get worse. As it is, you already can't build rental in Toronto right now so the only option is condo.
The issue is supply and people who think otherwise are foolish.
So what we are getting into is just politics and ideology...do you believe in more government or less? More social programs? Higher taxes on the "rich?" There is nothing unique about this topic and it is certainly not unique to real estate..it's just that real estate is receiving the most attention because people can't afford it...but let's expand the scope of your position to other necessary goods such as food and water. I would argue that food and water are more essential to living than housing and I think most would agree. With today's inflation, food and water are becoming less and less affordable...should grocery chains be held responsible for the rising cost of food? When inflation increases their costs should they eat the cost rather than increasing their prices to consumers? Should the government pass "Affordable Groceries" legislation and require that grocery stores offer 10% of their groceries be priced at 100% AMI? If your answer to any of these question is "Yes," then my response is "to what end?" Should grocery stores offer 10% affordable groceries? 50%? 100%? Should they voluntarily act as a "soup kitchen" and offer free meals to everyone? I wonder how long that will last...
Real estate is actually worse than this example...not only are there affordable housing legislation that requires developers to provide affordable housing units, but they also have legislation that severely limits the supply of developable land. We get hit on both ends...the government/public creates a housing crisis by limiting developable land through racist zoning regulations, height restrictions, setbacks, use restrictions, and in some cases ridiculous building code requirements and then when housing becomes too expensive, they force developers to provide affordable housing...Please look at the zoning map of any city and you will see that it is overwhelmingly single-family zoned...can you please provide me with a valid argument as to why these zones can't be zoned for duplexes? Triplexes? 20 units? 50 units? If we no longer had single family zones and could build apartment buildings on every tract of land, I promise you...there would no longer be a housing crisis. Do you know what the argument against this is in my city? "We don't want to look like NYC," "An apartment building won't match the neighborhood context," "That (decrepit) single family house is 100 years old...it's history," the list goes on...So the reason so many people cannot afford to live in my city (and I suspect many others) is essentially because apartment buildings are too big and tall...I don't know about you, but this doesn't seem like a very good reason as to why people should not be able to afford housing..
You ask if I "take any fault" for the housing being unaffordable and my answer to that is it's irrelevant. Whether I take fault or not doesn't change anything. Let's say I do take fault and keep all my properties at some arbitrary affordable price..let's say 100% AMI..will the thousands of other developers do the same? I doubt it. If you rely on people's "good intentions" to run this economy and ultimately society, you're going to be very disappointed. So instead I rely on capitalism and the invisible hand. If we could provide enough supply of housing that a house/condo unit dropped to $200,000 (arbitrary number for the purposes of this discussion), nobody would be complaining about unaffordable housing anymore. Generally speaking, my observation is that whatever the government touches turns to shit and I especially see this for housing and real estate because I have more knowledge in this area.
FYI as Ozymandia already noted, when I say "Government," I am really referring to voters, particularly homeowners because homeowners are the ones who essentially lobby local government against development
"NIMBY"
I think it's a lot more nuanced than that. What are you buying? If it's fully amenitized, luxury multifamily in a central business district, then I don't know if I care so much about raising rents. You're already at the top of the market, so any juice you have is probably because the units are underpriced as is. Are you buying in low income communities and raising rents in order to evict tenants? That seems a little more ethically dubious to me.
Honestly, go even deeper. Have you even been in that community? Walked the street, spoken to the residents, understood local priorities and fears? I don't think that there is anything wrong prima facie with raising rents. Hell, it's one of the only ways to pay for capital investment into buildings, which are often needed. But if you're going in, jacking up rents, cutting services, and leaving tenants high and dry.... yes, I think there is an ethical issue there. Not sure if it has anything to do with the "current climate" but I do think slumlords cause social problems, and impose a burden on the public weal while privatizing a lot of the gain. I think housing is a right, so for better or worse it's a natural intersection of social and economic consequences which can be tricky to manage
I mean, I'm not sure about you or the people you know, but most of my friends are middle class people, and of those that live in apartments they are seeing 15-20% increases in rent YoY. It's across the market and they don't have anywhere to go except cut their budget in order to save money. If big groups are in need of deploying capital, and according to the brokers I've been talking to over the past couple weeks Class B is by far the most competitive market for multifamily and prices haven't seen any adjustment even with capital markets movement, which further shows that in order for any of the assets to work they need hefty rent increases.
They may not be low income communities, but if the only way investments work are if there are 8-10% increases in rent per year, that's not an issue of funding capex or improvements to the property. I agree on the aspect that if you are buying luxury resort style MF, but most people aren't, especially in the current climate. Class A and C are seeing the biggest price movements and lowering of values over the past couple months.
What are the ethics behind rent increases that are market based, if everyone is increasing rents you will of course be below market quite often.
Well, this is self-evidently untrue. There is nowhere they're willing to go.
Look, supply and demand indicates that someone is willing to pay those prices. Middle class Americans have been used to being fawned over and pampered by politicians of all stripes, so the idea that they'd be forced to move 30 minutes away, or into a lower income urban area, might be new and shocking... but that's been the reality for poor Americans for a long time. Perhaps now we'll see an end to restrictive zoning or community approvals which have barred new construction from keeping pace with demand.
But someone has to pay those rents. If someone is willing to pay, then I'm not sure where the malicious aspect of this comes in. A middle class American facing a 20% rent hike... well, that sucks, and I'm not saying it's right, but those people have the ability and means to move to a lower cost of living area. My sympathy is a tad bit limited in this instance because this is often the demographic which has been most dismissive of the needs to actual low income tenants to find affordable, safe, clean places to live in the past.
Unless you think there is a conspiracy across the entire country among landlords to price set in tandem, like a monopoly, then I don't see how this argument holds water. Those increases can't happen without someone willing to pay, and there are too many actors in the space to maintain the discipline needed to prevent people from lowering prices to increase absorption.
Maybe there aren't. Part of being a renter is not being tied to one place. If you don't like what is happening to your rent, move. I strongly suspect that most people's objections is to moving to a place they don't like, not that they can't find anywhere affordable to live.
I tell myself when I go to bed every night that I'm solving the housing shortage for 6-8MM households in America. The reason rents are cranking, beside inflation, is that there is not enough housing for everyone, and that there are a thousand NIMBY groups in every place we're trying to build.
At the end of the day, all those models wind up in a huge political fight (NMHC) to try and build more, obviously profiting us investors/developers in the multifamily space - and that's what make me feel good everyday. That and my bonus of course.
By the way - if it makes you feel better, the 20-30% rent bump in the headline you see is a lease trade now number from the covid-era leases. If you're annualizing rent growth from 2019-present, you're looking at a 3-4% rent increases, which is typical. So yes, tenants are just crying - the leases you signed during covid in a fancy building you thought you can afford, well you actually can't afford to live there to begin with.
I've heard there are plenty of empty apartments, especially in expensive cities like NYC and LA. I've heard that the most luxurious apartment buildings in NYC where an apartment costs $50M+ are half empty and wealthy people just buy them as a store of value and only use them occasionally.
The ultra luxury homes are for the super rich and have nothing to do with what my firm invest in....We do traditional class A/B/C multifamily that normal people live in.
And there's isn't "plenty of apartments" - the housing crisis in America is serious - have a read for yourself - https://www.cnbc.com/2021/09/14/america-is-short-more-than-5-million-ho…
Student housing landlords are the worst. Literally make their money by stealing deposits, charging random fees, and threatening to evict 19 year olds.
Too many people overpay for land because "they stopped making it years ago!1!", then act aggressive when dealing with municipalities, end-users, and the communities they work in...because they need to hit their returns. Its just a very aggressive business strategy. The amount of poor operators is astonishing. That being said, not enough construction since 2008 & continued migration means we need more product
The first half of this doesn't make any economic sense (landlords can set rents but can't force anyone to pay them, so if they're hitting those rents then they're by definition not over-market) and the second half underestimates the amount of underinvestment in new home building that's been going on. It's been a problem for far longer than the last decade or so.
Also, what does "continued migration" mean?
If I overpay for land, that land comp now exists. If I overpaid for construction pricing (1) no one really knows, and (2) unless I pass the buck onto the end user, I should expect lower returns. Too many companies overpay for land assuming that they can pass it on to end-users or hope inflation covers their ass. As a land owner, if you see someone sell land similar to yours at some wild number, wouldn't you want that too? Then you won't accept more "reasonable" offers maybe for years. This hampers the ability for supply to get to the market
On land: brokers will point to it and say that is the new high water mark and seller expectations will change to expect that. For Buyers to stay in business, they need new projects. To start new projects, you need to buy land. Capital partners have a lot of money that is sitting idle on their balance sheet. They want to put that money to use. So the developer is incentivized to start many projects, so that the capital partners can commit a lot of money, so that the business can keep going, so people have jobs, and the world can go around.
I primarily work in one of the most prominent case studies for underinvestment. I am aware.
"continued migration" --> immigration numbers to North America basically never slow down. Most immigrants end up in major cities. This means that the majority of population growth happens in areas that are only so large in land mass. You need serious infrastructure (which takes time) to make areas away from the urban core viable for investment
nope. pay or move.
I do not, there needs to be an investment. People moved away from urban areas and are shifting locality. The only logical thing to do is to buy single family homes and use as rentals, until supply catches up to demand. Retirees are downsizing at a faster pace, more are owning or renting more than one property and don't have a need for a big house. The Banks/Prop management companies have the funds they can do with them as they please. To be fair rent increases in most multifamily units are from algorithms based on the corresponding supply and demand within the building and surrounding area.
With regards to affordable housing, honestly no one would be in the business if there wasn't a good return. It is on the people to push for more affordable housing and Section 8/FHA/USDA backed lending. Rents are what they are and constantly I see people that choose to live in a location because they want to be in that location, not base it on affordability. Aka moving to another
Most Metro areas have never had such low occupancy in their history.
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As if private equity is any better…
The kind of cynicism from someone who is almost certainly in an industry without any ethics whatsoever, and is looking to drag everyone down to their level.
Allow me to preface by saying that even I realize I am doing some mental gymnastics here and that this is probably just copium. One overarching fact that people tend to gloss over is that institutional investment managers across asset classes (including real estate) manage money for many pension funds.
As an LP who acts as a fiduciary to these pension funds, it is our job and responsibility to invest their money responsibly and smartly in order to meet their coupon rates and investment needs. If we don't and act irrationally and lose their money, then teachers, firefighters, government employees, etc. have all been negatively impacted.
Also Money Monkey is absolutely correct. The media can go wild over these "outrageous" rent increases lease over lease. However, the fact is, landlords are simply catching back up to the pre-COVID normalized rent growth trend. Even just now, we are finally starting to see our leases reach back to, not even above, pre-COVID rent levels. People just go too comfortable with their COVID deals.
What’s going on rn in New York is fucking criminal. Brokers adding absolutely no value then charging 2x monthly rent in fees when prices are already sky high. I legit asked one why they are doing this and they told me “well basically we got no fees during covid and are trying to make up for it”. Yeah like I give a FUCK about you not making fees for opening a door? What absolute scumbags.
Lmao ethics and real estate. That’s a good one. Real estate douchebags are as slimy as it gets. Little greasy weasels that couldn’t get legitimate investing jobs and like juice the fuck out of a non-discretionary commodity. Gonna laugh when they all start crying after the rug pull happens
Ah yes, that's right I forgot that traditional PE and hedge funds, and especially investment banking, have historically been known for their upstanding ethical and moral values.
How silly of me to forget.
It is silly of you :) In PE and Public investing jobs you don’t have Joe Blow from Staten Island who took an online real estate course last week demanding $10k cash for opening the door for you and your roommate to view $4k/month apartment. Then you have these rat ass property companies raising rent 70% saying “hey man it’s just what the market is right now man we didnt make any money during covid man now demand is high man it’s just what we gotta do man”. Can’t wait for housing crash 2.0 and these greaseballs to feel it
I'm an owner at One57 - spend long and hard thinking about this dilemma as my tenant has been enduring significant adversity. Their pet poodle was diagnosed with anxiety so they had to get a new pet to accompany them.
Only made sense to get a ring tailed lemur. Thing is w/ a lemur, the carry costs come out to about 2k/month and the little rat costs 15k to begin w/.
Only ended up raising their rent on the 1bd/1bath unit they have from 12k/month to 15k/month.
Thoughts? I thought it was fair in lieu of circumstances.
hehe I was really thinking there is somebody on this forum who lives in a place like that, but probably not. who do you think owns and rents apartments in places like One57? has to be famous athletes/musicians and some successful big business owners/C-suit managers?
This douchebag
https://therealdeal.com/2021/12/02/north-dakota-businessman-scoops-up-2…
The biggest ethical dilemma I see currently is the growth of new companies/strategies within existing companies designed to acquire single family homes in smaller markets, specifically buying up homes to turn into vacation rentals in places with <25k population (i.e. any popular ski/beach towns). These towns were already struggling with the influx of remote workers and low interest rates driving up rents/home prices and these new vacation rental investment funds are making things much worse.
Ethics and real estate are like water and oil, get a grip
Ethics refers to the ethically sound norms, values, and practices that a society or community holds. When it comes to the actions of highly competent or prominent professionals, ethics is extremely crucial. Although there is no official code of ethics for all real estate agents, many are members of the National Association of Realtors, which does. While not all real estate agents must adhere to the NAR's code of ethics, they must all follow it.
If the landlord raises rent 15% and a tenant comes in and willingly pays that rent isn't it by definition an affordable rent (for that tenant)?
no because it's not like the tenant has a choice. they have to live somewhere. that's why it's fucked. I'm not talking about if one place raises rents 15% I'm talking about if all of them do. why not just spend 95% of your income on basic expenses like housing and food, it's affordable because they can still pay it right?
Because real estate is so fragmented that you'll never be able to establish a cartel that can raise prices by 15% across the board. And at the income band we're talking about, there is always a more affordable option the next neighborhood over, or the next town down the road.
It's only when you get to people who genuinely cannot afford to live without government subsidy that you lose that elasticity. And those are the people who deserve our sympathies, not the middle class NIMBYs who fought against new development for years and now find themselves priced out of a home in a major metro area.
I'm coming into this late so haven't read most of the comments but I believe in these two contradictory thoughts
So how do we encourage both more supply, but reduce demand in the hottest areas to create more equal balance?
I'm not a gigabrain on exactly what the federal gov't can do, but we need to ask the right questions that get us closer to a solution, than arguing endlessly in a circle about the merits of X Y or Z. I never see the top of increasing the demand in other markets via the fed gov't, but these ideas should be proposed and debated
People really should point the finger more at tech companies like google selling data to Yeildstar or whatever Rent Optimization software people use.
Google harvest tons of data, how much people make, where they work, ect. to feed into these things to make the max possible rent someone would be willing to pay. Landlord don't say hey I am going to push rent as much as they flip over to a new software that comes up with rents for them.
But again, someone is willing to pay that, instead of moving. For what we're discussing, there is always a lower cost housing option if you're willing to be inconvenienced by another 20 minutes or whatever.
The answer is to build more housing. Specifically, more and denser housing located near mass transit. Doesn't matter what kind of data Google sells, if you had 20% more options you'd see a massive reduction in price.
Also, as unpopular as it is, we may need to rethink the assumption (in the United States) that every person is entitled to own a subdivided house in a suburban area with a nice lawn and 3 cars and whatever.
I don’t understand why everyone on here believes in capitalism and supple/demand for every industry, except for real estate…for some reason people don’t understand that real estate and housing also follow supply/demand economics. Very bizarre to me
So, my city is trying to do that right now.
https://www.10news.com/news/local-news/south-bay-news/mts-board-approve…
I have seen people trying to sell off their recent purchases lately (houses) in nice areas because the lifestyle they wanted became unaffordable. Owners who have sold their homes, too, are unable to find a place affordable to either purchase or move into.
I actually plan to live near a localized transit area in the future, hopefully cuts down on costs of transportation and easier commute to work. Makes life simple too. I would save more money, but also have a relatively easy lifestyle.
I am just saying, we aren't raising rents by 60% in FL unless we have data that says we should. The landscape of the industry is changing and how available data is being used more than Landlord got greedy* (if thats the right word) one day out of nowhere.
wow I wish I would have gotten here earlier. to the free market capitalism bros what's to stop you guys from raising rents to the point where people are spending 95% of their income on housing and food and such. sorry man it's just capitalism bro. shocking that the comment higher up in the thread by CREnadian got 16 SBs and no MS. like dude obviously there is a moral dilemma with everyone (not just one properly) jacking up rents because they can all get away with it because people literally require a place to live. the rent to income ratio doubled from 1985 to today. is it fair if it doubles again over the next twenty years? yeah bro it's fair that's just capitalism bro.
also it's not like my source was the fed or anything on that stat lol. it could be true but for some reason it's hard to find a website that just shows historical rent to income ratio. gee I wonder why it's so hard to show that. I'm more interested in what you capitalism bros think theoretically.
Have you read the entire thread before commenting? This has been answered ^ multiple times. You may not agree with the answer, but your comment is no different from many other comments here. The problem is on the supply side via restrictive zoning. Now the government either relaxes zoning laws and encourages denser development to increase supply or they continue to pass stricter affordable housing requirements. Eventually what will happen is that affordable housing regulation such as rent control becomes so restrictive that developers/investors stop investing in real estate and then that further widens the supply of housing from demand...I don't understand what is so complicated about this topic...it follows basic economics and the laws of supply and demand, but yet people on here can't seem to grasp that. Yes I understand we are talking about ethics, but this can go both ways...most landlords are not large corporations who own 10,000 units and increase rent 20% a year...the vast majority of housing is owned by someone who bought an extra investment property to rent out and maybe just breaks even. When the cost of maintaining/developing/financing real estate goes up, are these landlords just suppose to eat the cost and subsidize renters? Is that ethical? Is passing rent control legislation that can quite possibly fuck over these landlords ethical? Many people are NIMBY's because they understand that more housing supply will drive down their home's value so they oppose new development...is that ethical? If OP or others on here also questioned the ethics of these other stakeholders, then it would be a fair discussion, but everyone is only focused on the real estate investor being unethical and doesn't question the government, NIMBYism, etc...which are ultimately the source of unaffordable housing. Also, as Ozymandia pointed out already, most people CAN move to somewhere cheaper...they just CHOOSE not to because it affects their life style so they demand that landlords lower rent...Is that ethical?
[EDIT] If you believe that the answer to unaffordable housing is more affordable housing and rent control, then idk what to tell you. Because nation wide local governments are finally starting to realize the problem is restrictive zoning esp single family housing; hence why many states/cities such as California are getting rid of single family housing zoning; albeit, a little too late.
Holy shit...how is this thread blowing up AGAIN over literally the SAME thing. Every industry succumbs to the laws of supply and demand. When the government intervenes with regulation, then supply and demand will never balance exactly and depending on the severity of government regulation and the severity of market forces, supply and demand can become incredibly imbalanced...This happens across EVERY industry, including real estate and healthcare. Now why are these two industries receiving the most attention? Because government regulation has not changed in decades, but market dynamics has changed drastically. I will not speak for the healthcare industry since that is no my expertise, but government regulation is also the cause for exorbitant healthcare costs. Back to real estate. We have zoning laws across the nation that was written in the 1950's-1970's that still govern real estate today...50-70 years later. And the vast majority of this zoning is for single family homes. To those on this thread who are vilifying real estate developers/investors, why in the world does it make more sense to pass rent control/affordable housing regulation than to rezone these areas to allow denser development (which, by the way, we already know DOES NOT WORK. The reason we have the term "rent control" at all, is because it did exist at one point and then every city fucking repealed it because IT DOESN'T FUCKING WORK and actually exacerbates the problem. All this information can be found if you use Google)? I assume all of you commenting against real estate investors all work in some type of finance background...so I assume you have studied economics and understand supply and demand. So if the price of real estate is rapidly increasing...that must mean there is more demand right? Well through the laws of economics, how do we bring prices down? We...increase...supply...right?? Am I missing something here? Now what is stopping us from increasing supply? Restrictive zoning laws...and what is preventing us from repealing restrictive zoning laws? NIMBYism i.e. the people who already own houses and don't want more supply...then why are your efforts not directed at NIMBYism? I don't understand it...this is actually history in the making...for the first time ever...the Have Nots are defending the Haves and screwing themselves over....As for ethics...90% of real estate owners are not Sam Zell/Blackstone/Tishman/ etc... passing real estate regulation can significantly hurt these owners.
I don't think most people arguing for rent control or saying that landlords are charging obscene rents or whatever are against allowing for denser development. You keep bringing that up like you think that we would be opposed to that or are forgetting about that or something.
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