Housing is a Rip Off: The National Disaster and 11 Steps to Fix It

Why I'm Triggered

Every week I read stories on social media about someone’s unfortunate situation driven by the increasing cost of housing and wages that have not kept up….and I’m sick of it.

Part of me wants to message these individuals privately and offer words of financial advice and encourage a solution-based mindset rather than outcries of injustice. I have always been a believer in self-reliance and the mindless complaining and blaming is not productive.

…but then I think about John, the American hero who spends long hours driving an ambulance to provide for his family and make alimony payments to his ex-wife. I know that John may never be able to buy a home and may always be one accident away from bankruptcy.

The reality of our current position in the economic cycle is that home prices are high and mortgage rates are high enough to ensure someone like John may never qualify for the loan. Furthermore, rents are increasing at a much higher rate than his 3% annual wage increases. Eventually, John may have to move to a more affordable area, leaving behind his job, friends, and the community where he has lived for many years.

I’m not here to preach pity and argue the morality of raising rents. After all, my livelihood is based on buying #multifamilyrealestate and renting units to working class Americans. Rents must be raised to keep up with the inflation of expenses and provide a minimum return on investment for shareholders. I have always been a proponent of free market solutions to real world problems and there is no emotion involved in the calculation of economic equilibrium.

John’s situation is a reminder that the hardworking people who service America will increasingly struggle to afford life’s basic necessity of shelter, and this reality has second and third order economic effects that reach far beyond John.

The affordable housing crisis is not just about struggling blue collar workers and single mothers….it threatens the stability and economic prosperity of our entire society. It's a problem that is impacting everyone in this country and urgent action is needed to solve it.

How This Dumpster Fire Happened

The root cause of the housing crisis is a lack of new construction, coupled with rising housing costs (home prices, interest rates, and rents) and stagnant wage growth. The lack of available land for development, and several regulatory barriers that make it more difficult and expensive to build new housing, are the main reasons behind the shortage. This has led to skyrocketing housing costs, and a widening gap between the cost of housing and median incomes.

So What?

The consequences of the #affordablehousing crisis are dire and wide-ranging.

• Businesses will struggle to attract and retain employees, which leads to reduced productivity and economic growth.
• Reduced purchasing power of low and middle-income families will reduce consumer demand and lead to economic stagnation.

I believe in the power of the market to drive productivity. There is a supply problem and we need to take a market-based approach to solving it. We must increase the supply of affordable housing units, and remove regulatory barriers that are preventing the construction of new housing.

This is not a problem we can afford to ignore because it threatens the economic well-being of our nation. It's not just the right thing to do, it's also a smart economic move.

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We Can Make a Dent!

There are several steps that can be taken to address the affordable housing crisis without increasing restrictions such as rent control or providing additional free handouts. Forcing investors to create affordable housing will never work because there will always be a more profitable investment elsewhere. Additionally, social programs are expensive, often abused, and can kill ambition.

Instead, the solution to this problem must make investment in affordable housing more profitable. Similar to how pets are trained, humans respond positively to incentive-based conditioning, and negatively to punishment.

Steps Toward Progress

Here are 11 steps that could result in a significant increase of affordable housing units:

1. Increase funding for affordable housing programs such as the Low-Income Housing Tax Credit (LIHTC) and Community Development Block Grants (CDBG) to build and rehabilitate more units.
2. Introduce more local incentives such as density bonuses, reduced permitting fees, and streamlined approval processes to developers who build affordable housing units.
3. Offer surplus government-owned land to investors at a low cost for the construction of affordable housing units.
4. Form Joint Ventures (JVs) between governments and investors to build and finance affordable housing projects.
5. Expand Housing Trust Funds (HTFs) to provide grants, loans, tax credits, and other forms of financial assistance for affordable housing.
6. Encourage the development of micro-units and accessory dwelling units (ADUs), which can be more affordable for low-income renters and can be built in existing neighborhoods, rather than requiring the construction of new developments.
7. Change local zoning and land use policies to allow for a greater density of housing units, making it easier and more financially viable for developers to build affordable housing.
8. Offer tax relief to landlords who agree to rent units at below-market rates to low-income tenants, making it more financially viable for them to do so.
9. Establish more government-sponsored loans for acquisition and construction of affordable housing units, which can be offered to real estate investors with better terms than traditional financing.
10. Promote the use of modular and prefabricated building techniques, which can help to reduce the cost of building new housing units and can make it easier to build in difficult or remote locations.
11. Re-purpose existing asset classes to affordable housing. According to Dror Poleg , “30% of office buildings can be converted into housing....and can make cities more affordable, more equitable, safer — and more fun.”

Final Thoughts

The affordable housing crisis is a multifaceted problem that is affecting people from all walks of life. The root cause is a lack of new construction, coupled with rising housing costs and stagnant wage growth. It is crucial for our society's stability and economic prosperity that we take urgent action to solve this crisis.

Instead of using restrictive measures such as rent control or providing additional handouts, a market-based approach should be taken to increase the supply of affordable housing units and remove regulatory barriers preventing the construction of new housing.

If you know of any additional steps that can be taken to solve the affordable housing crisis, add them in the comments section below!

About the Writer

Elijah Brown is a real estate investor, entrepreneur, Army officer, and writer. While working as an investment analyst for Bank of America, and later as an associate and manager for Healthpeak Properties (S&P500 REIT), Elijah developed a love for real estate and began raising private capital to acquire over $100 million of apartment units across the United States. Elijah is the co-founder and managing partner of GoldHawk Capital, a real estate investment firm that raises capital from private investors to acquire multifamily buildings in Arizona.

If you have any questions, please leave them in the comments section.

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