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Why the rental housing market is so deeply broken

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America’s housing market It’s broken, but deep structural problems cannot be solved with technology.

Important reasons: There is a desperate need for better quality rental housing in the United States. Homeownership works for many people, but it doesn’t work at all for many others who may not be ready to settle down or have the financial means.

Big picture: Venture capitalist Marc Andreessen has invested $350 million, the largest check ever. Adam Neumann’s new company, Flow.

  • Andreessen’s blog post develops his investment theory that renting a home is a “soulless experience.”
  • The details of how Flow will work are not yet clear, but it could include useful features for apartment renters or some kind of financial benefit.

What they say: “People who are used to where they live care more about where they live,” Andreessen writes. “Without this, an apartment would not create a bond between people and a place, and without community, there would be no bond between people.”

  • In New York, I lived in both owned and rented apartments, but the community in my rental building was just as vibrant and tight-knit as anywhere else I owned. rice field.
  • Think Harlem, New York or Hialeah, Miami. Areas with very low homeownership rates often boast deep and enduring communities that span generations and decades.

Reality check: Sam Chandan, director of the NYU Stern Center for Real Estate Finance Research, told Axios: “It makes us invest more in community decisions that affect the value of our assets.”

  • For example, Andreessen opposed In his hometown of Atherton, California, he said he wanted to develop an apartment complex because such developments would “drastically reduce the value of our homes.”

Line spacing: As a VC, Andreessen believes technology and entrepreneurship can solve problems in the rental market. (Naturally, this is Andreessen Horowitz, blockchain seems to be involved in some way. )

  • However, where rental housing is most successful — Germany Not because, in Andreessen’s formulation, the lessee “benefits the owner.” Rather, because of the security and affordability of housing.
  • German renters develop strong community ties, just like we do, just by getting to know their neighbors. They—we—don’t need the fancy amenities that his local WeWork offers.

status quo: Private sector solutions like Flow, by their very nature, cannot address the most serious obstacles to successful rental housing.

  • Neumann has a good chance of successfully pitching hot properties to up-and-coming renters in a fast-growing city like Nashville.
  • But that doesn’t affect the structural barriers that keep America from becoming a land of renters.
Why it is difficult to fix the rental market

Many of the reasons for America’s shortage of affordable housing are at the local and even individual level.

  • Zoning is the biggest problem. NIMBY like the one found in Atherton is the rule, not the exception. Getting a permit to build a new apartment complex is ridiculously expensive and difficult.
  • Education finance run by a narrow margin. As long as schools are funded by local property taxes, parents will prefer higher property values ​​to affordable housing, thus increasing the number of children attending local schools without a corresponding increase in tax revenues. often
  • american dream will also get in the way. After observing millennial behavior, Chandan of NYU said, “The data suggests that homeownership as a natural and expected evolution is deeply rooted in the American psyche.” I’m here.

federal policy Those who prefer homeownership are already considerably weaker than they used to be.

  • former president Trump tax reform The number of people applying for mortgage interest tax credits has dropped significantly, and government-subsidized 30-year mortgages are now widely available for multi-family homes.
  • Once they get married and start a family, buying a house and even voting against new construction is exactly what Americans do., whether it makes sense economically.
it’s time to build

Great recession After the 2008 financial crisis, new home construction, both single-family and multi-family, fell off a cliff, unable to keep up with population growth in the United States. But now it has recovered and more houses are being built than households.

Housing shortage continues We have to build a way out. But Andreessen is wrong when he claims that “our country is building houses faster than they can build them.”

  • Annual household formation rate gain in US adults, Headship rate, which is always about 50%. Household formation plummeted when the pandemic hit, but even before the pandemic, only about 900,000 households were operating annually in 2019.
  • On the other hand, sales of newly built houses remained firm. It has increasedHousing is being started at a rate of about 1.6 million units per year, well above the household formation rate, even taking into account the number of older units being demolished.

Bleakley Financial Group chief investment officer Peter Boockvar told Axios that multifamily builders are responding to ultra-low vacancy rates by reacting quickly.

  • In a year or two, if construction continues at current levels, rents could even start to fall, he said.

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