America's rental housing is older than ever. The median rental housing unit was built 44 years ago. That means most U.S. rental housing units were built prior to the end of the Cold War. Nearly 4 million renter households "live in physically inadequate units," according to the Harvard Joint Center for Housing Studies. The Federal Reserve Bank of Philadelphia estimated it'd cost $51.5 billion to address those physical deficiencies, but that estimate is probably woefully conservative. New York City estimated it'd cost $78 billion just to fix the city's own eroding public housing stock. Implications? 1) From a policy standpoint: This is why it's critical to focus on preservation of BOTH the affordability -- and -- physical integrity of America's aging apartments and single-family rental homes. If you only focus on one of the two, it's at the expense of the other. 2) From an investor standpoint: There are very real value-add opportunities out there, but not all will make sense without subsidies of some type. Location, building condition and current rent roll are, of course, massive variables. 3) From a developer standpoint: There's a real case for new supply EVEN WHERE/WHEN POPULATION GROWTH IS STAGNANT. Some cities lose more units to obsolescence than they build in a given year. And sometimes the older units aging poorly are located in neighborhoods that time left behind, requiring new housing in the neighborhoods where people want to live. This impacts all price points -- from affordable housing to Class A+ apartments. What are other implications I missed?
I really enjoyed this post. I would love to hear feedback on my ideas here. If proper preventative maintenance and CAPEX issues have been addressed, I would take a cold war vintage over a new build all day. Why? After the ammenties become common, the building is significantly less substantial. For example, true masonry construction is non-existent. New lightweight construction has become the norm, and if you have seen one going up, they don't look super structural to me. Yes, the engineers will disagree, buuut... So, I definitely want to keep an eye on property condition but also value some of the benefits of a vintage acquisition.
Jay: New stock will not last 40 years. Construction quality has declined precipitiously over the last decade plus. Rehabilitation, renovation will not be possible, rather demolition. It is curious not many in the industry have noticed this; specifically, appraisers and other due diligence participants.
Jay Parsons I was going to say insurance as well. Premiums are pricing out any older units, especially in coastal markets, and I believe that is the biggest threat to affordability at the moment. Older units are usually lower rent units, but if investors can't afford to insure them, nobody will keep them up.
At 44 years old, you would think the buildings are at the end of their useful life. The loans are fully paid off, and the properties are depreciated. Time to use #HUD to substantially rehab and preserve those rental units.
I know we all love new units but feel like no one is listening. As an owner of aging bldgs there is no platform (including access to low income housing tax credits) to address the physical deficiencies even in southern California. Admin at both state and federal levels need to wake up.
If you look at what's going on in the property insurance market, particularly in older cities like Chicago, insurance companies are jacking up premiums and essentially redlining properties older than 25 years.
In large California cities developers were profitably rehabbing older apartment properties until cities started passing rent control laws. The rehab stopped and communities end up suffering.
Commercial Loan Officer at BMC Capital
2 个月Jay Parsons, Trumps pick for secretary of HUD, Scott Turner, is a C-suite executive from JPI, a Dallas based multifamily developer. JPI has experience implementing the public private partnerships needed to make such re-investment in our aging multifamily stock possible. The same tax-exemptions used to help spur development works for aging product. As the secretary of HUD, he could roll out a national version of the TX based, 392 program, under which any Public Housing Authority(must be created by HUD) can offer a 100% property tax exemption, in return for the developer restricting rents. Maybe you could lobby him to make that happen?!