Income and wealth inequality have grown in the last fifty years.
On National Public Radio a professor in favor of inclusionary housing dismissed the data which seemed to say inclusionary housing policies decreased the rate of construction in the inclusionary housing zone in relation to the broader marketplace. I’ve heard many people do the same. Here’s what they ignore.
Last year California voted on a state-wide rent control measure. Apartment transaction volume dropped by about a third until voters defeated the measure.
In one suburb of San Diego there was a second and more severe rent control initiative. The number of buildings that sold last year was more than twice the average volume of the previous decade. That zip code may have been the only zip code of 100 San Diego County zip codes where prices dropped last year.
The Wall Street Journal reported New York City’s newest rent control initiative reduced apartment sales volume by 43% in the first quarter. The Real Estate Board of New York estimates regulatory changes could cut landlords’ net income by 30%.
That’s real data from the real world. But the professor, and many other people, don’t understand or ignore it. They can’t square their beliefs with the data about what happens when the government legislates some form of inclusionary housing.
Not everyone understands how individual investors sort among their options. After a generation of serving apartment investors, I’ve yet to meet anyone who said,” I’m happy with an acceptable return. Don’t even look for a superior result.”
Instead, almost every business day, teachers, fire fighters, CPAs, dentists, small business owners and others with investable cash, seek the better than average opportunity. When a project has 10% – 15% lower potential return than most of the other alternatives, those investors eliminate that laggard from the competition.
There may be social justice investors willing to step forward, with checkbook in hand and declare “I’m giving up potential return so that people in the bottom economic half will have better housing.” But after 25 years, out of approximately 2000 investors, I’ve only met one investor like that. He lacks the liquidity to buy his second asset.
The investors I serve respect tenants and improve the property. They earn solid economic benefits by improving their property. Wise landlords understand that the next buyer will pay more for an asset with higher income and lower costs. Smart landlords build wealth before they sell. Then they trade up and repeat the process. That’s not newsworthy. You won’t hear anyone discussing it on public radio.
Good landlords make neighborhoods better and improve the quality of their tenants’ lives.
Most of the rental owners I serve deliberately hold rents low for some or all their residents. That compassion is private not public. The owner/investor makes choices about his money. When government mandates extra costs, that decreases the appeal of that investment.
The people I serve are investors. They will put their money where they can earn the best return. Ironically, perhaps, that’s usually the neighborhood with the poorest residents. If government cuts their investment potential, they will look elsewhere or make a different investment.
This isn’t politics, liberal or conservative. It’s not even economics. It’s human nature.
Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.“