The U.S. is in a rental housing crisis.
So we pay $3,060 per month.
If I'm really honest, I don't think it's a very
good value for money.
Homebuilders believe the sector is already in a
recession, and experts are calling out laws that
make building expensive.
40% of the cost of multifamily development
is in regulation.
We have to do something about that if we're going
to build more housing.
Developers have a really hard job and they
regularly work magic.
In major cities like Washington, DC.
Developers are working with limited space.
Most parts of this country have exclusionary
zoning. The only thing you can build there is
single family homes, often on pretty large
lots.
But in the parts of town where big buildings are
allowed, you see a.
Lot of cranes going up.
Those cranes are going to build high rise luxury
apartments. In fact, this.
Year we're going to see some of the largest
number of apartments delivered in the luxury
sector than in history, literally.
Why are there so many new luxury apartments?
And what could the government do to get more
affordable housing onto the market?
When it comes to city real estate, the biggest
luxury is location.
If you can just walk from your apartment into a
metro station and head on about your day, that's
pretty great.
Here's a look inside of one new development in
the city.
Right now, we're in the ballpark.
District of Washington, D.C., one of the emerging
neighborhoods that is downtown, adjacent.
And this neighborhood has gone through a
tremendous transformation over the
last 20 years. As part of an overall plan to
create an extraordinary place. This building was
completed in 2020.
And this is the Kelvin Apartments, which is 312
apartments, over about 60,000ft² of retail
adjacent to our sister building, which is the
envy condo, which is 127 condos.
This development is currently valued at
roughly $230 million.
Transit oriented development creates the
best outcomes overall because of the proximity
to jobs, the proximity to educational
opportunities, but is also the most difficult.
You're creating not only deep foundations for
underground parking, you are often building over
metro lines and transit lines.
You're also taking care of of the neighborhood in
terms of its esthetic.
Living in this lifestyle does cost a premium for
the renter. Two bedroom apartments in this
building can rent for over $3,000.
Single bedrooms can rent for over $2,000.
Perhaps more surprisingly, those
prices are technically affordable for 40% of the
households in Washington, D.C.
And this pattern where the top 40% of earners
can afford housing while others struggle to find
affordable housing can be found in cities across
the US.
So you often see new housing branded as
luxury, in part because it's new.
I will say in my personal experience, I've
seen pretty high quality, affordable,
subsidized housing that could compete with any
luxury housing. I've also seen pretty old,
tired housing still branded as luxury that,
you know, wasn't the greatest housing out
there.
Here's another building that was completed in
2009 with luxury.
It's definitely not, but maybe a little bit of
standards, like a little bit.
The building has about 300 units and is worth
over $129 million appearances wise.
And from the outside, this flat looks amazing.
It is amazing. And there's so much light and
the location and everything. But then when
you actually live here, there's so many tiny
things. In total, it's sturdy maintenance
requests in a year and five months.
So it's quite a bit.
Days before this interview, a
malfunctioning dishwasher flooded parts
of Carolyn's apartment building.
Management brought in industrial fans to dry
the space.
It's Yeah 75dB.
I measured it and it's quite tiring.
Like your head becomes like this.
Many other tenants have raised concerns with the
build quality in this complex, citing thin
walls and repeated issues with water and
other infrastructure.
In a statement to CNBC, the property manager of
this building said that occasional maintenance
requests will be resolved as quickly as
possible.
Every homebuilder has a list of complaints, every
landlord in a multifamily apartment you
can Google and find complaints against
literally any landlord out there.
But I've been to a lot of these communities and
those communities are beautiful and they have
all kinds of amenities like the swimming pool
and a gym. And because these are large scale
communities, that means that the landlord has a
large scale service, usually on site.
Some of what's happening here is related to
changes in the real estate business
nationwide.
What we've seen in the last 10 to 15 years is
that developers used to get capital, develop a
property and maybe sell it as condos or have it
as rentals, and they would hold on to the
property. But right now we're seeing real estate
developers with a different model where
they're building a property and then to
quickly sell it off to a real estate investment
trust. So it sort of build to sell as opposed
to build and hold.
When you build a property and then sell it
to a real estate investment trust that is
controlled by Wall Street, it puts a lot of
pressure on the tenants.
Some of the rental crisis that we have in
terms of unaffordable rental market right now
is somewhat related to this new model of build
to sell and sell to Wall Street.
But that's the high end of the market when it
comes to more affordable housing, the government
typically plays a much bigger role.
If you look back historically, there's
always some balance of public and private
involvement. We run into challenges when whoever's
owning and running the housing either isn't well
capitalized or isn't properly motivated.
Now the government is using a tax credit to
encourage more building.
So the low income housing tax credit is a Treasury
program. It is a capital subsidy program.
It helps to provide money to build the
building. It does not provide operating
assistance.
This is a tried and true program which has brought
private capital into the marketplace to build low
to moderate income housing. It is our
flagship program right now.
Developers have built or preserved more than 3
million affordable homes with this tool.
They financed their projects by selling the
government issued credits to investors.
The investors provide the financing and in
turn, get a tax break.
More recently, Blackstone has gotten involved in
creating a subsidiary called April Housing,
which purchased 83,000 units of Lithtech.
A bipartisan group of lawmakers have called for
an expansion of this program across the
country.
Americans are faced with unaffordable housing.
Cost burdens for middle income families are
starting to increase as well. So teachers,
firefighters and others are getting priced out of
the market. Having a program, a credit program
that helps build housing for that segment of the
population will not only help them continue to be
successful, but it will also take a little bit of
pressure off the low income side of the of the
equation as well.
And others say that despite its success, the
program falls short of the country's needs.
The low income tax credit idea is a good idea, but
in the end, it's the developer, the investors,
that benefit from it.
After tax credits, the solution has become more
nuanced. Inclusive zoning is becoming more
popular around the country. Here's how it
works.
A developer wants to come in and build a 100 unit
building. The zoning will only allow for an 80
unit building. The locality would allow for
that additional 100 unit building, which obviously
makes the the the deal more profitable.
In exchange for ten of those units or 15 of
those units being set aside for low to moderate
income people is type programs are completely
local. They differ fairly significantly
across the country.
Organizers say these ideas need more work.
Most of the.
Inclusionary zoning units are either too small and
they are definitely unaffordable. The
inclusionary zoning doesn't really include
the economic conditions of the people who are
threatened with displacement, the design,
the benefit people who have the resources who
are in the quote unquote marketplace to take the
money and run when things start falling
apart.
This wave of publicly subsidized building is a
new version of an old story.
In New York City, a WPA housing demolition
project is underway which will greatly
improve the living conditions of families of
moderate means.
You know, if you go back many decades, urban
renewal was, you know, kind of translated as it
was code for, hey, let's knock down places where
poor people live and build other things.
And that has a pretty unpleasant history in a
lot of ways. We still have, you know, loan
programs with the name Urban.
You will on them. Now, when we think about it,
it is about preservation of existing affordable
housing. In some communities, it means
change.
We started our company working in downtown
adjacent neighborhoods where there had been
disinvestment for decades.
And so in Washington, D.C., that was the 14th
Street corridor and the eighth Street corridor,
both ravaged by the riots in 68.
Even the.
Nation's capital was seared.
In a place like Shaw Street.
You had a lot of affordable housing.
A lot of that Affordable housing was built right
after the unrest in 1968, after Martin Luther
King was killed.
Some of the properties that were there, some of
them were public housing, other then were
subsidized. Buildings have been bought by
developers who do luxury real estate.
And this trend is just moving to the Sunbelt
cities.
In 2022 apartment building went gangbuster
40 year high activity.
So we still have a residual shortage of
housing. So before 5 million now 4 million in
my estimation.
Us home builders declared a recession in August of
2022. That could slow down the growth of new
supply in cities.
While we had steady building opportunity and
start before the pandemic and in part
during the pandemic, we had a lot of delays.
That bottleneck has opened up and we are
expecting to see a little bit of a softening
in the market here in 2023. But that's going to
correct itself, we think, pretty quickly.
The more supply comes on the market, the less
pressure there is on pricing.
We do have issues with capital in the sense that
there's an increase in interest rates that has
decreased the amount of lending that's happening.
As we try to slow down the economy, we need to
make sure that we're creating the regulatory
as well as the financial conditions to be able to
produce the housing that's needed.
The Biden-Harris administration released
its housing supply action plan in 2022.
Their goal is to close the supply shortfall in
five years.
But when you get to affordable housing, we
need to be providing some additional capital
and or rental assistance to help make that housing
affordable to the people who need it most.
And that's where you get more rules, but also real
benefit from that public private partnership for
tenants.
More assistance can't come soon enough.
If I could, I would have already left.
There is, of course, the economic side of things.
There is no magic bullet here.
It has taken us decades to get to this point and
it's going to take us some decades to get out
of it.
The trick is how do you do development that's
inclusive, that's equitable, that is
luxury, so that developers can make a
profit but also fit middle income and working
class people.
The marketplace is structured not to house
certain people.
We need to admit that.