Posted on 06/27/2011 6:55:20 AM PDT by Kaslin
Politicians have done a dandy job pointing fingers at bankers for the housing meltdown and the subsequent foreclosure mess. Of course, nobody is better than our elected officials at pandering, obfuscating, and shifting blame. Many Americans have lost their homes and been forced to relocate to multi-family rental housing. But that market doesn’t present a very pretty picture either, and many renters don’t really understand why they are struggling to find apartments.
A recent article in the Washington Post discussed the current cost of rental housing. The article, citing a Harvard study on the topic, claimed that 26% of all tenants spend more than half of their income on rent and utilities. That’s the highest percentage in the last 50 years!
The article attributes the shortage of low-cost rentals to two principal factors: The cutback in residential development due to the deterioration of the economy in 2009, and the claim – at least according to a report produced for Congress by the Obama Administration – that financing is more readily available for high-end rental properties.
The Harvard study, the Obama report, and the Washington Post all display an appalling ignorance of the real estate market – or worse, participation in a cover-up intended to (again) protect their the political allies responsible for this mess.
Here are some of the real reasons for the rental housing shortage:
1. Government at all levels meddles in the market, forcing anyone who wants to build rental housing to jump through endless hoops, thereby causing interminable delays.
2. All this meddling causes significant cost increases, only to drive up the construction cost of each unit and the resulting monthly rent for the tenant.
3. Governments charge excessive fees under the misguided notion that the “deep-pocket developer” is bearing the cost when it is actually the tenant who pays a higher monthly rent.
4. Governments demand that developers pay for unrelated city enhancements such as street lights or parks. These are nothing more than bribes paid to public officials to complete their pet projects; again causing the development cost – and the resulting monthly rent – to increase substantially.
5. In many areas, politicians appease their union friends by requiring work to be done at what is referred to as the prevailing wage (union wage levels), thus further exacerbating construction costs.
6. Governments impose price restrictions (rent control) on apartments, limiting the ability of a developer to generate sufficient revenue to justify a project.
The fact that the Obama Administration wasted money on a study to tell Congress that financing is only available for higher-end apartments just boggles the mind. Even novices in the housing market can identify the real culprit: Government has made affordable housing impossible to achieve – and therefore no responsible lender will finance these projects.
That is why the Low Income Housing Tax Credit (LITHC) Program was established in 1986. This program utilizes private equity for the development of housing for low-income Americans, and today accounts for the vast majority of affordable housing developed in the U.S.
I recently spoke with Roger Davila, a developer I have known since my involvement with the LITHC program in 1992. Roger continues to this day to construct residential real estate for low-income Americans, but he has regrettably concluded that government wonks and politicians have twisted this program to once again make it difficult to develop any housing in a cost-effective manner.
The LITHC program was established by the federal government, is run by state governments, and requires that local government approve each project. Davila stated over the years, California State Treasurers (like other state treasurers) lowered the acceptable income level for potential renters, which (because of increased risk) resulted in a demand for additional financing by local redevelopment agencies. That just means more delays, more governmental oversight, and less ability to profitably produce quality affordable housing.
Davila also told me that construction and financing requirements have further impeded the prospect of getting a project off the drawing board and into the building stage. Requiring nicer projects with greater facilities may be admirable, but it costs money and limits the ability of a developer to make the project work economically. When local government forces you to include new social engineering programs – like after-school programs, ESL classes and computer training for seniors – you begin to wonder if “affordable” is actually in the terminology of the bureaucrats involved.
We have a significant housing problem in the United States. Most of it is caused by do-gooder politicians sticking their noses into an area where they have little or no knowledge, and imposing rules that undermine their actual objectives. If history repeats itself, future “solutions” will only involve more meddling and result in less affordable housing. That will only change when the American people get rid of professional politicians and bureaucrats, and assign the task to responsible adults who actually want to fix the problem.
Something is up here. I can smell it.
One of our local news stations ran a story last week about a 68 year old woman becoming “homeless” because her building had been sold and the new owners raised her rent.
Obviously she did not have a lease. And her rent had apparently not gone up in ten years under the prior ownership. And they offered her a new lease at the new rent but she said she could not afford the extra $120/month. So she became “homeless”.
(in truth she did find a new place that she could afford, but it won’t be available for a month so she’ll have to crash with her son...they downplayed that part of the story)
When stuff like this starts hitting the media in a coordinated way they are setting us up for something. Rent control? More public housing? Who knows.
Increase taxes on the “greedy” landlords?
Affordable housing, just means bring the ghetto to your town.
Don't count out property taxes in all of this. Back when my family was in the construction business I had reason to look into the tax laws in my town. The property tax assessment was based on what a property was approved for not what was actually on the property. Some of the landowners around would approve a small apartment building and work on it when they had the time (when their other business was slow.) The town would charge the full price of a completed four unit apartment building when all that was there was a foundation and a well. They couldn't afford to take a couple years of those rates so they would just stop building on their land. Supply of rental units was reduced and demand stayed the same so prices went up.
See how it works...only Obama/Democrats will save the poor
I lived in a building that was sold mid-way through my lease. The new owners honored all leases until they ended.
That is a possibility.
You always have a lease. if there isn’t one signed in place, you have a month to month lease. Generally, landlords use this for long term renters. I like it because I am free to move any month I want and don’t need to worry about breaking a lease and losing my deposit or paying a penalty.
There is no rental housing shortage, what we have is 30++ million illegals distorting the market. They, the stinking government, allow illegals to live in all HUD housing projects and programs. You damn citizens just get out and live in the streets.
My mother and father bought a home back in the early 70’s for my sister and her family to live in. They paid rent monthly. My mother is elderly and we are in the process of selling the house. We have now been informed by Montgomery Country, MD that my mother owes $98.00 a year to MC for renting the property. My mother also has an accountant who does her taxes every year, so he should have known this. She rented it to my sister for $425.00 a month for years. That’s actually a lose to her, seeing the taxes for this messily little 3 bedroom duplex is over $3000 a year.
The 0bamunist vision for the survivors of their eliminationist agenda is a Chinese-style barracks culture where nothing is personal or private. It’s a warehouse for human cattle.
The last thing we need is for the government to ‘fix’ high rents. Price goes up because demand goes up. A lot of evicted people need a place to live. Rental housing is a substitute good for a bought home. If demand and price goes up in rental housing, then, eventually, demand, and therefore, price will rise in single family homes. If the government leaves this alone and doesn’t attempt to ‘fix’ the problem. There is a lot of rental and buyable housing supply out there. Leave the market alone and it will find a stable level.
You mean besides property tax they have a rental tax? Isn’t that double taxation?
More demand for rental units and no new supply also means that the sale price per unit goes up. So when a new landlord buys a place it is at a far greater price than the old landlord bought it for. Since the majority of that price is financed, the cost of doing business for the new landlord is significantly higher than for the old landlord. These folks aren’t greedy, just seeking a reasonable return on investment.
Yea, I suppose it is.
Yes.
Govt imposes heavy costly regulations on housing investors and landlords, then wonders why monthly rental prices are so high.
Pools must have safety fences around them, for example. (Even if the units are occupied by retirees or college students only).
How big do “the dots” have to be, to connect them? It always comes back to ...govt interference.
AND, PRICE CONTROLS DON’T WORK. DUH!
I keep saying that the Government at some point will declare all the houses now owned by the banks and fannie&freddie will be turned into section 8 housing.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.