The Small Balance Intersection Update - July 15, 2024

Stat Of The Day: U.S. workers paid more than $1 trillion into Social Security in 2023. Yet, some 47% of U.S. non-retirees believe Social Security won’t be able to pay them benefits when they retire, according to a 2023 Gallup survey.

Did You Know that RentCafe's 2024 ranking of the best cities for renters lists Charleston, SC, as the top city for the second year in a row?

Luxury Apartments Avenue

Why Building “Luxury” Apartments Brings Down Rent for All

The National Multifamily Housing Council's (NMHC) recent analysis explains how building luxury apartments can help reduce rent for all housing segments. The key insight is that increasing the supply of high-end apartments indirectly alleviates pressure on the broader rental market. This "filtering" process occurs as affluent renters move into new luxury units, freeing up mid-tier and affordable units for other renters, thereby increasing the overall housing stock.

Luxury apartments generally come with higher rents, but they play a crucial role in meeting the demand for upscale living spaces without displacing existing affordable housing. The report highlights that markets with significant high-end development often see slower rent growth across all segments compared to markets with limited new construction. For example, data from cities like Seattle and Denver shows a correlation between high-end apartment construction and moderated rent increases in lower and middle-tier units.

The NMHC emphasizes the importance of regulatory reform to facilitate more high-end development, as restrictive zoning laws and lengthy approval processes can stymie new construction. By streamlining regulations, cities can encourage more diverse housing developments, ultimately benefiting the entire rental market. The study also points out that while luxury apartments are more expensive to build, their construction can stimulate economic activity and job creation, further supporting community development.

Overall, the NMHC report provides compelling evidence that building luxury apartments is not just about catering to affluent renters but also about creating a more balanced and affordable housing market for all. For more detailed information, you can read the full report on NMHC.

Increase Speed Ahead

?SFR/BTR construction starts surged to another new record high.

Arbor's Q2 2024 Single-Family Rental (SFR) Investment Trends Report showcases substantial growth and resilience in the sector. SFR/BTR construction starts surged to record highs, driven by robust rent growth and stable occupancy rates despite high interest rates. CMBS issuance hit $1.9 billion in Q1 2024, reflecting strong investor confidence. National SFR rent growth increased by 5% year-over-year, with Richmond, VA, leading at 8.1%. Cap rates rose to 6.6%, and debt yields climbed to 10.9%. Average SFR home prices grew by 2.5% from the previous quarter. Investor interest in secondary and tertiary markets is strong due to affordability and favorable demographic trends. The report underscores the sector's stability amidst economic challenges. The structural strengths of the SFR sector outweigh cyclical headwinds, projecting continued positive momentum. Read Arbor's latest Single-Family Rental Investment Trends Report, developed in partnership with Chandan Economics. Arbor Report.

Commission Overhaul Ahead

Does the Landmark Real-Estate Settlement Go Far Enough?

The real-estate industry is set to revamp its commission structure next month, but the Justice Department (DOJ) is still scrutinizing agent compensation practices. The industry resolved multiple lawsuits in March, facilitating easier fee negotiations, yet DOJ actions suggest further changes might be needed. The DOJ intervened in industry lawsuits and inquired about legal forms from the California Association of Realtors. Concerns were raised that agents might circumvent new rules.

The DOJ's history with real-estate investigations dates back to the 1940s. The March settlement could reduce real-estate commissions by 30%, impacting the $100 billion paid annually. The DOJ has until November to object, potentially influencing the settlement. Analysts predict substantial changes, including reduced buyer's agent commissions. However, some agents might attempt to preserve the current system through workarounds. The DOJ's ongoing scrutiny indicates further regulatory adjustments could follow. For more details, visit the Wall Street Journal article.

Renters Haven Avenue

Best Cities for Renters to Live in 2024

RentCafe's 2024 ranking of the best cities for renters lists Charleston, SC, as the top city for the second year in a row, followed by Atlanta, GA, and Sarasota, FL. Charleston leads due to its strong local economy, affordability, and quality of life, with major employers like Boeing contributing to job growth. Atlanta ranks second, praised for its cost of living, job opportunities with companies like Delta and Home Depot, and community involvement. Sarasota combines urban amenities with small-town living, offering spacious apartments and career opportunities. McKinney, TX, and Scottsdale, AZ, also rank high due to their affordable living, quality schools, and job opportunities. The South dominates the list, claiming 38 of the top 50 spots. The rankings are based on metrics like apartment quality, economic strength, and natural amenities. San Marcos, TX, leads in cost of living and housing, Miami excels in local economy, and Washington, D.C., tops quality of life. These cities offer a mix of affordability, job prospects, and lifestyle benefits for renters. For more details, visit the RentCafe Report.