Steve Welty’s Post

LANDLORD BC - Proposed Solutions to Address BC’s Rental Housing Crisis BC’s rental housing crisis is fundamentally due to insufficient supply, a fact recognized by all levels of government. While LandlordBC commends the BC NDP for their measures to increase supply, the spring announcement from the Provincial Government titled “More protections for renters, parents, landlords, families” falls short. It lacks meaningful protections or support for landlords and fails to address the supply issues. The new measures will increase financial pressure on landlords already dealing with higher property taxes, maintenance costs, and interest rates. This will likely lead to a decrease in rental supply as small landlords, who are crucial to the market, may exit the sector. Those with vacant units may also keep them off the market due to diminishing returns, further reducing available housing. Current economic conditions do not support the construction of new purpose-built rentals. High interest rates and rising construction costs mean that what was once a 10-year timeline to resolve the crisis is now extended to over 15 years. The Premier and Housing Minister have recognized the importance of landlords in providing critical housing and have committed to addressing bad actors in the rental market. However, the current approach is harming responsible landlords and, ultimately, renters will suffer the consequences. To address these challenges, LandlordBC proposes the following solutions: 1. Reduce Property Taxes: Implement a significant reduction in property taxes for all rental housing providers to mitigate operational and maintenance costs. 2. Reallocate Carbon Tax: Redirect the carbon tax on rental buildings to a fund that supports the decarbonization of aging rental properties in line with CleanBC objectives. This would help reduce greenhouse gas emissions and support affordable housing. 3. Legislative Framework: Continue consulting with LandlordBC to create a legislative framework that preserves current housing stock and encourages the expansion of new rental housing. 4. Tax Treatment of Capital Expenses: Advocate for changes in federal tax regulations to allow upgrades to rental properties (e.g., roofs, elevators) to be expensed rather than capitalized, providing immediate financial support for maintaining rental housing. By taking bold measures now, the government can support landlords and ultimately help renters, achieving a balanced and sustainable rental market.

Last week, I had the pleasure of interviewing Murtaza Haider from Toronto Metropolitan University to discuss why he believes rent controls killed the supply of rental housing in Canada. I left our conversation with two main conclusions. Firstly, the idea that rent control prevents investors & landlords from wanting to build or provide rentals and needs to be removed to encourage the provision of rental housing appears to be a view rooted in political ideology rather than scholarship. Most North American housing economists take a very neoliberal (free market) approach to housing policy (which de-emphasizes the role of government regulation and largely subordinates it to the freedom of the market considerations), which differs from the approaches of their European counterparts. These academic differences mirror the different housing regimes in North America vs Europe: most European countries, including those with liberal economies, have built a substantial supply of rental housing without abandoning rent controls for tenants and often see them as a non-negotiable part of their market economy. Secondly, if rent controls are a disincentive to owning multi-res housing, we would see that reflected in cap rates (the rate of return) on multi-res properties, which would be rising to compensate investors for this disincentive. However, according to commercial brokerage Colliers, cap rates have declined from just under 7% in 2009 to 3% in 2022, showing that the demand for this type of investment remains high, even with rent controls. Here, we need to make a critical distinction between two different actors involved in increasing rental supply, builders & landlords - because the business of building rentals and the business of being a landlord are not the same. Many builders of purpose-built rentals do not want to be long-term landlords. They want to build and then sell to a company that manages rentals. For builders, removing rent controls is not an incentive to build rental housing. That’s why policies incentivizing rental housing construction would be more effective than removing rent controls. These policies include an accelerated capital cost allowance (in Budget 2024), deferred capital gains tax, and recaptured depreciation due upon the sale, provided the proceeds are reinvested into building more new rental housing. Canada had these policies in place during our last apartment building boom, and economist Mike Moffatt and others have correctly advocated for them. Renters are amongst those most negatively affected by Canada’s current housing availability and affordability crisis. There is no rational economic or social justification for abandoning rent control, which offers renters security of tenure and the opportunity to build a viable life for themselves and their families. Getting into the landlord game is already attractive enough; getting into the rental building game isn’t, so it’s the latter that needs to be encouraged.

City of Toronto's recent adoption of the "Build More Homes: Expanding Incentives for Purpose-Built Rental Housing" initiative as part of the Rental Supply Housing Program aims to stimulate the construction of 20,000 new rental units, including 4,000 affordable homes. The program offers significant incentives, such as deferring development charges and reducing property taxes by 15% for 35 years, alongside grants up to $260,000 per affordable unit. These benefits are contingent upon developers designating 20% of units as affordable for a minimum of 40 years, targeting 99 years, based on the city's income-based definition of affordable housing.   1️⃣ Feasibility of Construction with 20% Affordable Housing Requirement The requirement to allocate 20% of units as affordable is substantial. While the incentives provided are generous, developers must assess whether these benefits offset the reduced revenue from affordable units. The program's success hinges on the balance between incentives and the financial viability of projects. Some industry stakeholders have expressed skepticism, suggesting that the incentives may not sufficiently impact the economics of development to meet the city's ambitious housing targets.   2️⃣ Impact on Mid-Rise vs. High-Rise Projects The program's structure may favor larger, high-rise developments over smaller, mid-rise projects. High-rise developments can distribute fixed costs, such as land acquisition and infrastructure, across more units, making it easier to integrate affordable housing while maintaining profitability. In contrast, mid-rise projects, with fewer units, might find it more challenging to absorb the financial impact of the 20% affordable housing requirement, even with the offered incentives.   3️⃣ Relation to Inclusionary Zoning Requirements This new program does not replace Toronto's existing Inclusionary Zoning (IZ) policies but complements them. The IZ framework mandates that certain new residential developments include a percentage of affordable units, creating mixed-income housing. The "Build More Homes" initiative provides additional incentives to encourage developers to exceed the baseline requirements set by IZ policies. By offering financial benefits, the city aims to accelerate the development of affordable housing beyond what IZ alone would achieve.   In summary, while Toronto's new incentive program represents a proactive step toward addressing the housing shortage, its effectiveness will depend on the real-world economic assessments of developers. The program's design appears to favor larger developments, and its success in stimulating the desired level of affordable housing construction remains to be seen.    We would like to hear from you regarding your thoughts on the program! Steve Keyzer Alex Holiff Preethi S. Connor Von Teichman Stephanie Plos  https://lnkd.in/eSJZs2z8

The majority of the content I come across online regarding landlords tends to be negative. The government seems to use them as scapegoats by pitting tenant and landlord against each other to divert from systemic housing issues caused by the government itself. It's important to recognise that many landlords are fair and supportive to tenants. When tenants and landlords work together positively, it creates a win-win situation for everyone involved 🤝. Open communication can lead to a more secure and enjoyable living environment 🏡. A constructive partnership can also make resolving issues like repairs much smoother 🔧, reducing stress for both parties. When tenants feel valued and listened to, they often take greater pride in maintaining the property 🛠️. To offer a balanced perspective, here are some benefits landlords bring to the economy: 1. Housing Supply. Landlords contribute to about 19% of the housing available in communities 🏘️, helping to fulfill the demand for residential accommodations. For many people renting is preferred and offers individuals the opportunity to avoid the financial risks associated with homeownership, such as potential property value declines or hefty repair costs. 2. Economic Mobility. Rental properties provide flexibility for individuals and families who may not afford homeownership or prefer temporary housing. This flexibility enhances the labour market by allowing easy relocation for job opportunities🧳. Renting allows people to move closer to employment opportunities or family without the financial burden of buying and selling property. It also helps students needing temporary housing during their education 🎓. 3. Job Creation. The property rental market is a significant job creator, offering roles in property management, maintenance, construction, and various associated services like cleaning, landscaping, and security 👷♀️🛠️🔧🧹. 4. Investment and Development. With the UK's heritage of having the oldest housing stock in Europe, landlords play a critical role in maintaining and upgrading properties 🛠️. This investment helps improve the quality of housing, ensuring it remains energy-efficient and safe 💡♻️🏠. Landlords’ contributions to property upkeep alleviate the financial burden on the government. Landlords are responsible for maintaining their properties to meet health and safety standards. This ongoing investment helps ensure that housing stock remains habitable and up to code. 5. Tax Contributions. Landlords pay property taxes that fund local services such as schools, infrastructure, and public safety 🚓🚒. Additionally, their rental income contributes to public funding through income taxes 💰. Overall, landlords are vital in sustaining and driving economic growth 📈, providing essential housing services, and offering stability in the housing market. Their roles highlight the importance of working together to create positive and thriving communities 🌟.

Last week we talked about MA making the list of highest rents in the country, rivaling historically high CA rents. Gov. Healey has said for quite a while how much this state needs additional housing. Not just low income, but affordable housing for first time home buyers, middle income, tenants and more. MA is well supplied with McMansions and other Luxury Housing. This housing bill is expensive but could bring real results for those just starting out, those looking to downsize, people who want to age in place and more. The bill, now law, is so wide reaching, I'd need posts for months to describe it all. Check out this article for more details: https://lnkd.in/ejtvd8MV? Standardizing and broadening the regs pertaining to accessory dwelling units(small dwellings on the same property as a larger home, in-law units, etc. will allow seniors to stay on or in their property in style and free up rental units for others. 1st time homebuyer assistance will get many buyers that were pushed out back in the market again and free up rental units. All these people now buying will help lower the pressure of skyrocketing housing prices and equally rising rent pricing as more buyers CAN enter the market. It elegantly kills 2 birds with one stone.  There's so much more in this bill to cover. You can research it yourself or ask an expert. Most Realtors, like me, don't charge consulting fees. Questions Answered For Free. How often do you see that? Call, text or email me, one of my co-workers at Brook or your favorite Realtor of choice. If you're a buyer, a renter, someone who wants to age in place and so many more situations, this bill, now law, will make your life easier once it's implemented. Keep in mind, It's brand-spankin' new and absolutely gigantic, so whoever you ask might have to research a bit to dig up your answers.... Still Free From Me. Have Fun!!! Lew McConkey,  Brook Realty, Serving Whitman Hanson & Surrounding Towns (781)252-9789   If you have questions about your place in the current Real Estate market, as a buyer, seller or Landlord, Please feel free to call text or email for your free, no obligation consultation.   [email protected] www.lewmcconkeyhomes.com https://lnkd.in/e8eb82q4

A lot's been written this week about rent control, with the White House releasing a national policy proposal that would offer landlords a choice between (i) agreeing to cap annual rent hikes at 5% or (ii) forfeiting valuable federal tax breaks.   Unfortunately, rent control's become a hot-button political issue these days. It's difficult to discuss its merits objectively without the appearance of party favoritism, but it's absolutely necessary to do so.   It goes without saying that it's a shame that in the wealthiest economy in the world we should have folks living paycheck-to-paycheck simply to afford the roof over their heads. Efforts to allay the high cost of living, especially in urban city centers, should be applauded, assessed, investigated.   But rent control is not it. There's a substantial body of evidence at this point that illustrates the following:   --- rent control leads to a 'mis-match' between tenants & rental units: think empty-nest parents in a 3-br apartment or a young family crammed into a studio. The effect is not only inefficient use, but a lack of availability   --- rent control leads to a decay in the housing stock: put (overly) simply, when landlords can't recoup (via rents) the investments required to keep their properties maintained, they'll simply not incur those costs   --- rent control disincentivizes the creation of new housing stock: the development decision is, at its core, a simple math equation. If projected future discounted cash flows provide a sufficient return to the developer, the project is undertaken. Rent control distorts that equation, presenting uncertainty (risk) even for projects that wouldn't immediately be subject to rent control upon completion   --- rent control may actually have the effect of reducing the availability of rental units: when rent control policies are enacted, landlords may seek to otherwise recoup their investment by selling the units to owner-occupants (likely higher-income individuals who can afford to purchase), or by building new construction condos in its place (local laws permitting)   So what's there to do? Well, the short answer is to create a greater supply of housing. More supply puts downward pressure on pricing, as we're seeing play out at the hyper-local level in many Sun Belt cities at the moment. Policies should therefore seek to incentivize the creation of new housing stock, either by (i) making it less costly to create new housing, via subsidy / credit or a more efficient - and therefore less costly - pre-development process, or by (ii) expanding the universe of what can be built and where, via residential zoning & entitlements or building code reform.   The linked article below provides a great, evidence-based primer on rent control and the body of research on its effects. A good read for anyone interested in CRE policy or development, or for those simply interested in prepping for the next dinner table convo.   #rentcontrol #housing #realestatedevelopment

🏢 𝗣𝗿𝗲𝘀𝗲𝗿𝘃𝗶𝗻𝗴 𝗔𝗳𝗳𝗼𝗿𝗱𝗮𝗯𝗹𝗲 𝗛𝗼𝘂𝘀𝗶𝗻𝗴: 𝗔 𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲 𝗼𝗿 𝗮𝗻 𝗢𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆? Jay Parsons highlights a critical issue—aging affordable housing properties, both LIHTC and NOAH, are at a crossroads. But for innovative investors, this is also a 𝗴𝗼𝗹𝗱𝗲𝗻 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆 to create value and drive meaningful change. 💡 𝘞𝘢𝘯𝘵 𝘵𝘰 𝘴𝘵𝘢𝘺 𝘢𝘩𝘦𝘢𝘥 𝘰𝘧 𝘵𝘩𝘦 𝘤𝘶𝘳𝘷𝘦? 𝘚𝘶𝘣𝘴𝘤𝘳𝘪𝘣𝘦 𝘵𝘰 𝘰𝘶𝘳 𝘯𝘦𝘸𝘴𝘭𝘦𝘵𝘵𝘦𝘳 𝘧𝘰𝘳 𝘦𝘹𝘱𝘦𝘳𝘵 𝘪𝘯𝘴𝘪𝘨𝘩𝘵𝘴 𝘢𝘯𝘥 𝘴𝘵𝘳𝘢𝘵𝘦𝘨𝘪𝘦𝘴 𝘵𝘰 𝘯𝘢𝘷𝘪𝘨𝘢𝘵𝘦 𝘤𝘩𝘢𝘭𝘭𝘦𝘯𝘨𝘦𝘴 𝘭𝘪𝘬𝘦 𝘵𝘩𝘪𝘴 𝘸𝘩𝘪𝘭𝘦 𝘨𝘳𝘰𝘸𝘪𝘯𝘨 𝘺𝘰𝘶𝘳 𝘱𝘰𝘳𝘵𝘧𝘰𝘭𝘪𝘰 𝘳𝘦𝘴𝘱𝘰𝘯𝘴𝘪𝘣𝘭𝘺: 𝘩𝘵𝘵𝘱𝘴://𝘣𝘪𝘵.𝘭𝘺/𝘑𝘒𝘈𝘔𝘚𝘶𝘣 Here’s why this issue is an exciting prospect: 1. 𝗩𝗮𝗹𝘂𝗲-𝗔𝗱𝗱 𝗣𝗼𝘁𝗲𝗻𝘁𝗶𝗮𝗹: Deferred maintenance presents a unique opportunity to upgrade properties, increase equity, and enhance tenant satisfaction. 2. 𝗠𝗶𝘀𝘀𝗶𝗼𝗻-𝗗𝗿𝗶𝘃𝗲𝗻 𝗜𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁: Balancing returns with social impact positions investors as leaders in both the market and the community. 3. 𝗣𝗼𝗹𝗶𝗰𝘆 𝗣𝗮𝗿𝘁𝗻𝗲𝗿𝘀𝗵𝗶𝗽𝘀: Collaborating with governments on grants, tax incentives, and preservation efforts can fund renovations while maintaining affordability. 🌟 This is our moment to lead: Addressing the needs of aging LIHTC and NOAH properties is both a challenge and an opportunity. By stepping up, we can create lasting impact and secure long-term returns. Credits to Jay Parsons! #AffordableHousing #RealEstateInvesting #JKAMInvestments #AlternativeInvestments

This is a great post by Jay Parsons. While LIHTC equity is our core business, the preservation of affordable (big and little "a") housing stock with non-LIHTC equity is a new focus of ours at Red Stone Equity Partners LLC. Apart from the items noted by Jay (and many commentors have made great points), a few other things have jumped out to me as we have been fundraising and building pipeline: 1) Public-private partnerships remain key to making deal economics work. Everyone knows about the HFC/PFC structures (pros and cons) in TX, but many other states and localities have programmatic abatement incentives which are key to making the economics work for investors, particularly in high-cost markets. Having the abatement in legislation (as opposed to deal-by-deal negotiations) is extremely helpful in attracting broader pools of capital and allows for better transaction volume. Taxes (along with utilities/insurance) are typically the largest expense item in multifamily deals, so an offset in this cost is imperative to achieve acceptable return levels without needing large rent premiums. 2) As someone who has historically focused on partnership and tax structuring issues in LIHTC transactions, I cannot emphasize enough the importance of prudent underwriting in terms of capital account management. There are economic motivations for investors (returns) and owner/operators (higher pricing) to underwrite high loss profiles in LIHTC deals but, at some point, someone has the pay the piper. Just because debt is "soft" doesn't mean that it's free, eventually the accrued interest bill (and corresponding exit taxes) come due. As a related point, the LIHTC 4% program and presence of soft debt often incentivizes high costs of construction. While this works for 10-15 years for capitalizing the asset, it results in the need for either a) more federal subsidy to be used (LIHTC resyndication) or b) a large basis reset to attract private capital. Option B is a very difficult scenario as it's never a win-win. 3) On the demand side, I will focus on banks for now (not to diminish the need for non-CRA investors - pensions, foundations, etc.). I have noticed that CRA requirements are an incentive for many institutional investors in this space. However, if there is no preferential treatment for equity over debt, then institutions will always choose debt. On a related issue, I continually hear about internal tax and GAAP accounting issues that constrain their ability to provide equity investments. Not to get too nerdy (I am a reformed CPA), HLBV accounting can lead to tax cash flows reducing basis which can result in early impairment issues. All of this to say, as CRA reform is on the horizon, this topic should certainly be a point of emphasis alongside LIHTC investing. 4) GSE involvement (as far as I have seen) is currently limited to debt. It would be great to expand their reach into the equity markets, perhaps targeting deeper affordability preservation.

We need to expand our definition of affordable housing "preservation." Everyone talks about preserving rent affordability. That's obviously important. But we also need to talk about preserving the physical integrity of these aging apartment properties. I believe this will become one of the biggest challenges in rental housing over the next decade. Here's why: 1) The first big wave of apartments built with the Low Income Housing Tax Credit (LIHTC) is reaching the end of their 30-year protections. One group, the Public and Affordable Housing Research Corp., estimates that 352k units will roll out of LIHTC by 2030 and 1mm units by 2040. Once tax credits expire, property owners are no longer bound to set rents at certain levels of affordability. 2) Additionally, the biggest apartment building wave in American history occurred in the 1970s through early 1980s. These are today what we call "NOAH" -- naturally occurring affordable housing. 3) No one knows the exact numbers, but millions of these units (both expiring LIHTC and aging NOAH) have seen minimal capital injection since they were built. They're getting old. Deferred maintenance items are adding up -- roofs, HVAC systems, plumbing, etc. Many of the living units haven't seen more than a fresh coat of paint (and maybe some new carpet) since they were built. 4) That puts investors -- for both expiring LIHTC and aging NOAH -- in a tough spot ... a predicament that headlines tend to completely ignore: a) Do we invest the capital needed to bring these units up to safe and modern living conditions? If so, we'll need to raise the rent -- and risk pushing out people who can't afford the higher rent. Lots of investors may want to do this, and it can work in some areas, but it comes with risks: You're labeled a gentrifier (a dirty word in many communities) and some renters might be pushed out with few alternative options to rent. Or: b) Do we prioritize keeping the rents at the same affordable levels? If so, we'll continue to let the property age into obsolescence -- as we've seen occur countless times among rent controlled units and public housing. So this strategy is risky, too: You're labeled an "absentee landlord" with unsafe living conditions. It's not an easy question to answer. It's a lose/lose. Unless there's some type of real policy intervention (existing preservation programs, including LIHTC itself, don't appear to be enough for various reasons), this could be one of the great challenges in rental housing over the next decade as more of these original LIHTC deals age up. It's also a great opportunity for someone to step up and solve. #affordablehousing #rentalhousing #housing

Jay Parsons I believe you are missing a key piece, which is the importance of #missingmiddle in your observations and solutions. Incomes of 80-150% in #California and the most expansive cities are the most left behind segment. The #LITC #developers and #NOAH funds are doing their part to deliver specific product for families, seniors, homeless #supportivehousing, but each asset should be looked at with the lense of “What do I want to be when I grow up?” #Attainablerent has been my personal focus the past decade and there is not financing for it. The developer and investor has to be mission driven, execute and target the same returns as subsidized and the upsides of luxury housing. But the times are changing when we see most of the demand for renters in the middle. This is a #policy issue. Some communities are candidates for: 1) #teardowns and develop higher density in urban and urbanizing areas 2) #densification (develop higher density within garden communities) 3) some could serve the #missingmiddle 4) some may be best for #LITC #AcqRehab for low and very low income 5) some may want to be luxury housing. In my opinion, each community should serve the highest and best use for that market and demand. A #freemarket is a more efficient market. #PearlX is investing $100 million and has another $100 milion to allocate right now to clean energy infrastructure for older and newer communities from rooftop and carport solar, #BESS or battery storage, #EVCharging stations and other amenities. We see many times the roofs need replacement (even on 20 year old assets), MEP and building systems need major investment on 40-50+ year old buildings due to #obsolecence. The fact is the real estate industry is not set up to make these investments and transition nor are passive investors interested in operating the #proptech #hardware #software for the next 30 years. We are scaling fast developing an #endtoendsolution that the industry needs building a billion dollar #VPP (virtual power plant) as our part of the equation. Impact Housing Beyond-Development.Org