NAHB Cries Apartment Shortage, We Call it a Scandal

Ah yes, talking points

This week, the National Association of Home Builders continues repeating the talking points that sound something like “we can’t get funding so there will be a housing/apartment/condo/townhome shortage and the housing recovery will fail and we’ll all be in another crisis.” Yawn. Yesterday, we reported NAHB as noting that “the current financial situation has led to sharply decreased construction of communities that serve the market. Without a chance in the availability of capital for development and construction, there could well be a shortage of such housing when it is most needed.” We called foul then.

Apocalypse now?

Today, we share with you NAHB’s newest rally cry that they “‘desperately need lenders to begin financing apartment communities again,’ said NAHB Chief Economist David Crowe. ‘The vacancy rate for apartments is elevated now, but as the economy recovers and jobs return, the people who’ve been doubling up with relatives and friends will want a place of their own – and there may not be one available.’” Again, we have to cry foul. NAHB is just doing their job by rallying for the industry, but we have to note that with foreclosures at a historic high, by the time the economy turns around, there will be more than enough houses for rent. It’s not like there’s a population boom here, there are options for renters other than multi-family.

While it is true that the home builders big and small have been kicked in the gut by the economic crisis, they didn’t scream loud enough soon enough, as it seems that bailout open season is over and Uncle Sam’s wallet has snapped shut. It’s unfortunate and I hate seeing people I know get laid off in the building and construction industries, but their Association failed them by just NOW crying shortage. Sure, they’ve whispered it here and there, but reading the last several news releases on the NAHB site shows a consistent set of talking points indicating a communications plan they’re putting into place, but is it too little too late?

Rental rates, vacancy rates and the sky is falling!

In an article about how investors will profit wildly from the distressed multi-family properties, Dr. Victor Calanog of National Real Estate Investor notes that “the national vacancy rate hit 8% by the end of the year, up from a previous high of 7.8% in 1986. Asking rents fell by 2.3% through 2009, the largest annual decline on record. Effective rents fell by 3.0% for the year, more than triple the worst decline previously recorded in 2002.”

According to CB Richard Ellis, apartment vacancy rates are projected to remain high through 2010 and rent growth won’t resume until 2011.

Remember when you learned about statistics in high school and your teacher warned you that the average or the median is the most reliable number? I don’t think NAHB took that class, because the apocalyptic numbers being thrown around seem to either be on task for their screaming bloody murder to the White House or they took the most extreme statistic and printed it for public consumption:

Per NAHB, “Industry experts expect demand to outstrip current supply by mid-2011, with increasing shortages of rental housing through 2014. This is very likely to increase market-rate rents as much as 8 to 10 percent per year in 2011 and 2012, and by 4 to 7 percent per year thereafter through 2015.”

Oh really? I’ll get to that in a second, but let’s get the history of why this is ludicrous first…

NAHB can actually do something more productive

So now, on top of screaming bloody murder, NAHB is positioning renters to get used to perceived shortages AND to prepare to bend over for rent increases that their crystal ball predicts will escalate at historic rates because, you know, all of those people shacking up at mom and dad’s house are too stupid to look anywhere but their local Apartment Guide.

NAHB could use this down cycle as an opportunity to pressure the multi-family leasing sector to lose the high ended attitude that everyone on the planet has a 700 credit score, because as people come out of foreclosures and evictions due to past layoffs etc., they will be declined unless someone advocates for qualification criteria as an industry to be softened to a more realistic standard matching today’s economy.

As a former property manager for one of the largest REITs in the world, I’ve seen first hand how overaggressive qualification criteria can hurt renters (also known as PEOPLE) and eventually property management that is overly cocky, and ultimately the REIT portfolio. And don’t even get me started on how arbitrary market rates are, I’ve seen how they’re created and it’s a process akin to putting a monkey in a room alone with a calculator… we call that scandalous. I’ve also had the displeasure of working at one of the largest commercial developers in America and there is no such thing as people or communities, there is just a financial report that determines if a property will sell or not, that can be read in thirty seconds and enrage or soothe any developer who lives in bed with the bank.

Fill the units you currently have- you have ridiculous occupancy rates that agents can’t place renters into that they should be able to. Criminal history? Fine, decline. Low income? Fine, decline. 480 credit score? Fine, decline. Fill these units and maybe lending will loosen up a little bit for your future projects… we’re not suggesting to fudge criteria, just help out those sad little victim people your Chief Economist mentions that are having to live with family and friends. NAHB is, after all, so concerned with them, right? Or is that just a line that looks good on a press release?

I predict however, that NAHB won’t advocate for the rental consumer that keeps the multi-family sector alive, nor will they make a solid move toward giving banks a REAL reason to lend again, nor will they produce realistic statistics until the recovery is well on its way and they’ve realized that their throwing a temper tantrum isn’t going to preemptively raise rents or get them a bailout.