Roundtable Weekly -- February 21, 2020
White House Report: Over-Regulation Constrains Housing Supplies; Walker & Dunlop Report Considers Barriers, Solutions to Improve Housing Affordability
The Trump Administration yesterday issued its Council of Economic Advisers’ 2020 Annual Report, which warns that regulatory constraints on affordable housing development in key markets drive up costs, increase homelessness and pose a potential threat to U.S. economic growth. (White House, Feb. 20)
- The White House report also lists issues such as the opioid crisis as a drag on the historic economic expansion, while focusing on affordable housing constraints as a major impediment. (PoliticoPro, Feb.20)
- “We find that a key driver of the housing unaffordability problem is the overregulation of housing markets by State and local governments, which limits supply,” the report states. “By driving up home prices, overregulation adversely affects low-income Americans in particular, who spend the largest share of their income on housing.”
- To illustrate how rising housing unaffordability in U.S. real estate markets adversely affects economic growth, the report profiles 11 supply-constrained geographic areas. The report finds that deregulation in these areas would increase affordability enough to reduce homelessness by an estimated 31 percent on average.
- The report explains, “Such overly restrictive regulations include zoning and growth management controls, rent controls, building and rehabilitation codes, energy and water efficiency mandates, maximum-density allowances, historic preservation requirements, wetland or environmental regulations, manufactured-housing regulations and restrictions, parking requirements, permitting and review procedures, investment or reinvestment tax policies, labor requirements, and impact or developer fees.”
- The Trump Administration has focused on deregulation by establishing the White House Council on Eliminating Regulatory Barriers to Affordable Housing, while the Department of Housing and Urban Development (HUD) is encouraging State and local governments to focus on increasing housing supply in areas where supply is constrained. (Roundtable Weekly, June 28, 2019)
- Affordable housing policy was also the topic of a panel discussion moderated by Walker & Dunlop Chairman & CEO Willy Walker during The Roundtable’s Jan. 28 State of the Industry Meeting in Washington. Participants included House Financial Services Committee Ranking Member Patrick McHenry (R-NC) and Federal Housing Finance Agency Director Mark Calabria – whose agency oversees the Government Sponsored Enterprises that own or guarantee $5.6 trillion in single and multifamily mortgages. (Roundtable Weekly, Jan. 31)
- In Walker and Dunlop’s previous Outlook Quarterly Report (Fall 2019) a policy Q&A with Roundtable President and CEO Jeffrey DeBoer addressed housing affordability and rent control. DeBoer states in the interview, “Although we focus on national issues, we do have concerns about the more local trend to enact rent control. These laws are destructive. They may help those people in the short term but those same people are hurt in the long run by giving them lower and lower quality housing. It ends up being very inequitable over time and hopefully the trend will not gain additional traction.”
- Additionally, National Multifamily Housing Council (NMHC) President Doug Bibby responded last week to a recent Wall Street Journal editorial on affordable housing – “Government rules drive developers to build luxury apartments.”
Bibby states, “A full 32.1% of multifamily development costs are driven by government regulations—fees, standards, approval requirements, impact studies. … Places with the heaviest hand of government are hurting hardworking families trying to make ends meet the most. We should streamline regulations, give people more housing options and bring costs down.”
The national dialogue about affordable housing policy challenges and solutions, along with the evolving dynamics of the upcoming elections, will be discussed during The Roundtable’s Spring Meeting on March 31 in Washington.
Commercial Real Estate Executives Report Balanced Real Estate Market Conditions Supported by Stable Economy
The Real Estate Roundtable’s 2020 Q1 Economic Sentiment Index released this week registered a three point increase over the 2019 fourth quarter index. Commercial real estate (CRE) industry executives continue to experience generally balanced market fundamentals across nearly all product types, with limited overbuilding and conservative overall industry debt. CRE executives also positively noted the continued macro-economic job growth and low interest rates. Election year politics and international tensions somewhat temper the overall optimistic sentiment causing some CRE executives to prepare for potential market disruptions later in 2020.
“As our Q1 index shows, we are beginning a new decade optimistic about continued overall economic growth,” said Roundtable President and CEO, Jeffrey D. DeBoer. “Commercial real estate markets remain fundamentally sound; supply and demand are in relative balance; debt and equity capital markets are functioning and disciplined; wages are rising; and, unemployment is low,” DeBoer added.
The Roundtable’s Q1 2020 Sentiment Index registered at 52 – a three point increase from the previous quarter. [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.] This quarter’s Current-Conditions Index of 55 increased two points from the previous quarter, while this quarter’s Future-Conditions Index of 50 came in at five points higher compared to Q4 2019.
The report’s Topline Findings include:
- The Real Estate Roundtable Q1 2020 Sentiment Index registered a score of 52, a three point increase over the last quarter of 2019. Respondents feel the overall economy is stable and the commercial real estate market continues to be supported by strong market fundamentals. Many respondents have stopped attempting to predict an end to this cycle as they see no apparent economic hurdles to current market stability.
Despite respondents finding comfort with the current market climate, many are anticipating two phases of the 2020 calendar year: pre-election and post-election. Many noted that election years are notoriously unpredictable and point to a large volume of transactions already underway as platforms attempt to execute before the summer.
Asset values remain elevated across most property types and geographies. While certain respondents suggest that asset values have room to grow, others view current pricing as being at peak levels.
Debt and equity capital are perceived as widely available in most markets. Many respondents noted the high level of discipline they are witnessing in the debt markets on behalf of lenders. This level of discipline suggests a healthy state in the capital markets, and is a contributing factor to the continuation of the current cycle.
DeBoer noted, “There is natural concern regarding the uncertainty of the coming presidential election. However, the commercial real estate industry’s leading executives are positive about today’s economy and optimistic about future market conditions. As the year progresses, The Roundtable will continue working with national policymakers to maintain and strengthen pro-growth policies to create jobs, expand housing opportunities, and benefit the overall economy.”
Data for the Q1 survey was gathered in January by Chicago-based FPL Associates on The Roundtable’s behalf. For the full survey report, visit http://www.rer.org/Q1-2020-Sentiment-Index/