Skyrocketing Rents

60 Minutes had a news piece Sunday evening (March 20, 2022) focused on rising rents. The largest real estate investment firm is buying up single family homes as fast as they can, as soon as they appear on the market. The CEO claims many of those homes are bought sight unseen and without a building inspection. They take the homes as they are, refurbish them, and then lease them at prevailing rental prices. That is to say, rents about 30% higher than the region's previous rental pricing. 

60 Minutes asked why. The answer: the US housing market is short 4 million homes.

Four million homes. Think of that.

Many millennials have been living on campuses, or sharing small apartments near their work, or simply living with their parents. The pandemic witnessed a lot of this. As the pandemic eases and people are returning to more normal activities, incomes are rising, new careers have become established, and homes are sought. Single family home purchases have driven that market to new heights nearly everywhere in the US. But many people who lost their jobs also lost their homes. They cannot buy another home but must now rent.

Renting a house is one option. Renting a condo is another. Renting an apartment is the norm. Any way it is cut, the housing supply is still short 4 million units. So, what happens? Prices shoot up.

The reality for many is no options are available. Senior citizens who are renting are stuck. Rents rise regardless of ability to pay. Moving to a new rental home is the only option for them. Or maybe they can move in with one of their kids? Not a happy circumstance for anyone involved!

The sad truth is the real estate industry fueled this market shortage in the early 2000’s. Banks and investment banks greedily fed the blazing housing market. And the inevitable crash of 2008 and 2009 happened. Foreclosures on mortgages were a phenomenon of the times. Millions lost their homes. The largest investment banks failed. Congress bailed out the banking industry to the tune of $1 trillion. Think about that.

Congress enabled this financial collapse and even argued how to solve it. Eventually they were forced to act and did. Banks had egg on their face. Residential real estate brokers had egg on their face. But lost in this disgrace, were the millions of families routed out of their homes. That problem remains to this day.

Instead of fixing the problem, we now have greedy real estate investors buying up homes and rental units so they can manipulate the supply and demand for their own financial return. Yes, I said greedy.

The opportunity that beckons is building new apartment complexes, building new homes, and filling the supply of 4 million housing units. That is enormous and should keep the construction industry busy for several years. The only thing needed? A response by the construction industry to get to work. That will require cooperation of the banking industry. A little more help would be nice from the real estate industry!

The question is: Why haven’t construction companies responded to this need?

March 22, 2022

 

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