Jon's Reading List - Week of July 2, 2021

Posted By: Jon Lowder Blog,

A collection of interesting things I've read this week.

Apartment Industry

Triangle rental demand 'pricing out affordability' as end to eviction moratorium nears (WRAL TechWire, June 30, 2021)
Rental rates in Raleigh have increased by 3.4% in June, compared to May, and the median price in Ralegihfor a two-bedroom unit is $1,375, according to data released this week by Apartment List, which tracks and analyzes about 100 rental markets across the country,.
Durham rental rates increased by 3.6% compared to the prior month, according to the market analysis.
To put into better context, costs are rising faster in the Raleigh area (11.2% over the past year) than the national average (8.4%).

Eviction Moratorium Forced 12% of Small Landlords Out of Business (, June 30, 2021)
Landlords owning one to five single-family rentals account for 88% of the 14.9 million SFRs across the country, Pinnegar said—and he maintains that in a recent survey, 11% of them say they’ve sold one property as the result of the pandemic. And 12% have sold their entire portfolio...
It’s a move some housing advocates say jeopardizes affordable housing, since many of those transactions included institutional buyers. The $3.4 trillion SFR market is expected to surpass multifamily, office, retail, storage, and hospitality growth by 2022, according to Walker & Dunlop, and as the asset class has grown in popularity it has become flooded with capital from institutional investors. Lennar launched a $4 billion SFR platform in March, and JP Morgan Asset Management made a $625 million equity commitment last year to American Homes 4 Rent to develop approximately 2,500 homes in high growth markets across the West and Southeast. 

Supersize Apartments are Back in Demand (Wall Street Journal, June 29, 2021)
In 36% of U.S. cities, apartments under construction are larger on average than those built over the previous five years, according to a report from RENTCafé, a nationwide apartment-search website. Units in 33 of the 92 cities studied rose nearly 50 square feet on average, the report said.

Ending deposits would open doors for low-income renters in North Carolina (Raleigh News & Observer, June 27, 2021)
“Renter’s Choice” legislation is the answer to reducing the upfront costs of renting.
Under “Renter’s Choice,” rather than being forced to pay a burdensome upfront cash security deposit, renters can take out an insurance policy from companies such as Rhino that significantly lower the barriers to entry for renters. The policy allows individuals to rent without having to fork over hundreds or thousands of dollars up front, and contains numerous consumer protections that in many cases go above and beyond those offered by security deposits.

'The eviction moratorium is killing small landlords,' says one, as ban is extended another month (CNBC, June 25, 2021)
The majority of the nation’s landlords are individual investors. They own about 23 million units in 17 million properties, according to the U.S. Census. More than 6 million renter households are behind on rent, also according to the Census. Landlords have next to no recourse. 
After extending the moratorium, the Biden administration outlined measures it would take to further assist both renters and landlords. It said the U.S. Treasury would clarify “how grantees may achieve economies of scale by obtaining information in bulk from utility providers and landlords with multiple units to help speed the determination of household eligibility and to bundle, in a single payment, approved amounts for the benefit of multiple eligible tenants.” 
That, and other efforts from state and local governments, should help some, but if landlords don’t get the relief they need, there will be ramifications for the wider housing market.
“What there is going to be a tsunami of is a loss of naturally occurring, affordable housing, because small landlords are going to sell their properties,” said Hunter.

Housing/Real Estate

US Housing Market Booms, but Small Contractors Miss Out (Wall Street Journal, June 26, 2021)
Some small contractors say they are missing out on the U.S. housing boom as shortages of workers and supplies in hot markets result in project cancellations or business lost to bigger players...
Customers are turning to bigger contracting companies that can offer lower prices because they have more available workers, he said. “They have the power to increase the manpower. Where I may be limited to six guys on a project that will take me a week or two, they can put 10 guys and be done in three days,” Mr. Thomas said.

How a SoftBank-Backed Construction Startup Burned Through $3 Billion (Wall Street Journal, June 29, 2021)
The firm’s downfall wiped out nearly $3 billion of investor money, making it one of the best-funded U.S. startups ever to go bankrupt. Katerra thought it could save time and money by bringing every step of the construction process in-house—from manufacturing windows to factory-built walls to making its own lightbulbs...But Katerra never managed to do very well at all the aspects of construction it hoped to master, former employees say, leaving some of them exasperated at its recent demise.

Habitat for Humanity struggles with high construction costs (AP, June 25, 2021)
The past year has felt like one punch after the other, they say. First hit: Habitat’s local affiliates had to limit volunteers over virus concerns, forcing them to fork over more money to hire contractors. Second hit: Revenue was dented by temporary closures of ReStores, the reuse stores operated by local Habitat organizations. The third: Construction delays caused by pandemic-induced kinks in the supply chain, which make affiliates wait longer for supplies.
What could have been the knockout blow was the spike in construction costs.

Affordable Housing

Fannie Mae Introduces Sponsor-Initiated Affordability Project (Multifamily Executive, June 29, 2021)
Fannie Mae has added another tool to its toolkit to further its mission to create and preserve affordable housing units across the nation—the newly introduced Sponsor-Initiated Affordability product.
The product through Fannie Mae’s Delegated Underwriting and Servicing (DUS) model provides better pricing and underwriting flexibility to incentivize borrowers to voluntarily place income and rent restrictions on a minimum of 20% of the property’s units affordable for residents earning 80% or less of the area median income.
Existing, stabilized conventional properties are eligible, and product benefits include flexible loan terms, competitive pricing, certainty of execution, and speed in processing and underwriting. Loan terms are five to 30 years, with up to 30-year amortization, fixed- and variable-rate options, 80% maximum loan to value, and 1.25x minimum debt-service coverage ratio with the potential flexibility to go to 1.20x. The rent and income restrictions will be documented through the loan documents, and the affordability compliance requirements must be managed by a third-party administering agent and include annual verification of the rent and income restrictions.


US Added 850,000 Jobs in June Labor Rebound (Wall Street Journal, July 2, 2021)
The increase in jobs was the strongest since last August and exceeded economists’ forecasts. It followed a gain of a slightly revised 583,000 jobs in May and 269,000 in April. Despite the latest gains, the country still has 6.8 million fewer jobs than in February 2020, the month before the pandemic shut down much of the economy.

Jobs Are Hard to Fill, and Ideology Makes it Hard to Understand Why (Wall Street Journal, July 2, 2021)
The problem isn’t a dearth of jobs. As of the end of April there were 9.3 million job openings by the Labor Department’s count, and businesses all over are complaining about how hard it is to get workers. Some of the more popular explanations are that enhanced and extended jobless benefits have reduced recipients’ incentives to look for work and that ongoing difficulties obtaining child care have dissuaded many women in particular from returning to work.
Arguments blaming one or the other fall along predictable ideological lines, but there is evidence that both are weighing on the job market. More than one thing can be true about the job market at once, and, considering the unusual set of circumstances the pandemic brought about, other factors could be contributing to hiring difficulties too.