It seems that whether the real estate industry likes it or not, a growing percentage of the population of this country – or those governing us – seem to be coming to the conclusion that housing is not something one purchases or rents but a “right” that someone who lives in this country must have.
Since I try to keep politics out of The Real Estate Philosopher, I will not currently weigh in on whether this is truly a right or wrong point of view, but I do have some thoughts for real estate players to consider.
The reason I thought to write this article is because some in Congress are proposing to essentially ban institutional ownership of single-family housing nationwide.
Supposedly, this legislation will not pass at this time with a divided Congress, but the fact that some in Congress will promulgate this bill indicates that it “might” pass in the future depending on who gets elected and how the makeup of Congress changes over time, so those in the SFR – Single Family Home for Rent – business have to be wary.
Although, as noted, I try to stay out of politics in the Real Estate Philosopher, I make an exception for political initiatives that may harm my real estate clients or my beloved real estate industry.
In that vein, I will say that this legislation is dramatically misguided. There simply doesn’t seem like much social good being satisfied. Instead, it just seems to cater to an emotional view that big institutions shouldn’t own single-family homes. If that is the case, should big institutions not be able to own condominiums or multifamily? I admit this one is awfully puzzling what the promulgators are thinking.
Whether I think this idea is dumber than usual is not the point of this article. My point is that those in the SFR business need to consider two things:
- First – obviously, what if something like this actually becomes law?
- Second – more insidiously – even if this doesn’t actually become a law, the political winds may be blowing towards a view that, at least for some people, it is reputationally “bad” for an institution to be in the SFR business.
These kinds of risks should not be underestimated and are best outlined in NYC. In NYC, laws were passed, essentially wiping out virtually all of the equity ownership of property owners who owned rent-stabilized buildings. In addition, due to the general political background, many institutions are afraid to own this class of properties due to the implied reputational issues surrounding them.
Those risks are increasing in New York State, as there are continuous bills in Albany that threaten the viability of investing in multifamily properties in New York State. These include Good Cause Eviction, and bills to eradicate the few remaining ways for owners to profit from rent-stabilized homes are consistently being considered.
In NYC – and maybe New York State – those who consider housing a ‘right’ seem to be a stronger political force than those who think investing in housing is a legitimate investment thesis.
Then nationwide, there are more and more states considering rent control bills as the pricing of housing has risen.
My sense – yes, a prediction – is that these initiatives will overall grow, which puts the investments in these real estate products at risk.
Formerly, I had suggested that if you are considering investing in housing, you should consider the political climate in the applicable state, but I guess you now have to at least consider the political climate in Washington as well.
Does this mean you should get out of residential real estate completely? No, I would not say that. But it does mean that these concerns should be carefully assessed in evaluating the risk-reward of residential real estate investing.
Finally, to be unabashedly political here, I think all of these ideas are terribly misguided. At first, there is a celebration for those who benefit from a new law restricting those profiting from housing, but in the end, capital is chased away from these important industries, leaving decay and a shortage of housing products in their wake.
My – simple – suggestion is this: If the governing authorities of a state truly believe that housing is a “right,” then they should tax the people in that state to provide that housing. Crippling industry players that invest in, and thereby support, the needed housing is demagoguery that does the opposite of what is intended.
Bruce Stachenfeld aka The Real Estate Philosopher®