What every voter and apparently, the NY Times Editorial Board, should know about housing policy:
1. Rents reflect the balance of supply of apartments and demand for those apartments in a given area. That’s it; there’s no magic. If you want lower rents, you can hope for a recession that destroys jobs and, therefore, demand. Or you can add supply.
2. There is no amount of money that any big city government could feasibly spend that would add materially to supply. This is because, depending on the location, new apartments cost $250,000-1,000,000 to develop… building even a few hundred of those starts to stress any city budget, and many big cities need tens or hundreds of thousands.
3. On the other hand, investors (including pension funds and endowments, insurance companies, rich families, etc.) can collectively **easily** provide enough capital to build as much housing as we need **so long as they are confident they can get a reasonable return**.
To get those investors to fund the creation of the housing our society needs, we must do two things:
1. Dramatically reduce the time & complexity associated with securing governmental permission to develop housing. This means reviewing and simplifying the overlapping regulations that constrain housing production: zoning codes, building codes, parking, ADA, etc. But it also means changing the cultures within the relevant governmental agencies from “default no” to “how can we help you?”.
2. Provide certainty around on-going regulation of apartment operations.
The way investors get a return from building rentals is as follows: They hire managers to lease the apartments, collect the rents, pay operating expenses and any mortgage payments, and then send the investors the cashflow that remains.
But governments all over the country have been restricting the manner in which apartment buildings can be operated in all kinds of ways.
For example: Cities have been making it harder to screen tenants, while also making it much harder to evict tenants who don’t pay. You can see why both of those measures are politically popular. After all, who doesn’t want people to get second chances? And who wants anyone to get evicted? But, as a manager, the combination of those two regulations makes it much harder to predict, with any certainty, that the rent will get paid… and that makes it very difficult to get investors to provide capital to create more housing.
Another example: Rent control. Again, I understand why renters love rent control and why politicians want to give it to them. But, if, as has been the case in NY, LA and San Francisco, city governments hold annual rent increases below the rate of growth in the operating expenses of the buildings, the cashflow payable to the investors shrinks… making them much less likely to invest capital in building more apartments.
In conclusion: For ~every other good or service in the economy, we allow the market to function, and the result is that we have a surplus of choice at all price points (think of food or clothes or cars), which is spectacular for the consumer. If we want a surplus of choice at all price points in housing, we need to get comfortable with the idea of allowing the market to provide it.
And that means allowing investors to build rental apartments *and* allowing them to operate those apartments in a manner consistent with making a reasonable profit.
Remember: Every developer of rentals is either a landlord-in-waiting or hoping to sell to one.
@ClintFiore Taking lessons for 5-6 weeks now at a golf tec and practicing 90-120 minutes a week there on the sims. Translated directly to the course last week and playing again Sunday. Might not be for everybody, but it’s working for me.
@BowTiedBroke If you’re in Atlanta, I’ve heard great things about Applerouth. Can go a step further and ask them about college counseling options if you really want to give her a leg up.
@StudentRentPro Half basketball court (like the frat houses on Greek row) if you have the space. How much of an outdoor kitchen can you build with $20k? Massive Grill + Beer Fridge (or 2)?
Big shout out to Mills for doing this!
4 years ago, when he was still with Permanent Equity, Mills gave a similar talk at USC
I was 1 of 15 lucky attendees. That chat, followed by an immersion in SMBtwit changed my life.
Highly recommend if you ever get the chance!
Had a great time chatting with Finance Scholars group from @MooreSchool and @UofSC
We talked about @acquanon and ETA (Entrepreneurship Through Acquisition)
Big thanks to Brandon Mendez and Dr. Eric Powers for having me. Such a sharp group, great questions, and hungry!
@MikeBotkin_ That was one of the big issues with the iPhone 15 when it first came out right?
That was one of the reasons I bought a 14 instead. Might be worth looking into if you replace it like Shaun suggested.
@SullyBusiness Trick #2
Convince your spouse to live in a cheap apartment / starter house to save $
Impossible to rationalize buying a new car after that
@SBA_Matthias@realEstateTrent Costco’s in my area start clothing sizes @ Medium and waist sizes @ 32in.
“Small” doesn’t even exist
I marvel every time but then I stop by the food court on my way out and it all makes sense.
@MikeBotkin_@reid_rupp_ If we are thinking of the same business, completely agree with you. Took a hard look at it and came to a similar conclusion, though I assumed 7-8x.
Sounded like the brokers grabbed a tiger by the tail and didn’t know it.
It’s an incredible business.
@bobbyfijan Walk-in closet unless the Den gets a window (hard to do).
Answer might change when I get closer to having kids.
Most apartment rooms without windows I’ve been in feel very dark, no matter the lighting fixtures.
@Techie2Investor@thesamparr Newberry, SC
Supposed to be on the “easier side” of Spartan Ultras if there is such a thing.
WV sounds mountainous! I just finished my first trifecta weekend in Atlanta on the 17th.
Beasts are great - best ones IMO
@rohindhar Recent article on WSJ about Atlanta Movie Making real estate market. Mentioned a house that routinely rents for $45-65k/month to actors who are in for a short filming stint.