← The Rent Roll with Jay Parsons
The Rent Roll with Jay Parsons
EP#78 Richard Ross & Mike Kingsella | The Bizarre Push To Kill Build-To-Rent
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Welcome. Welcome. It's the Rent Roll, your podcast on all things rental housing, apartments, single family rentals, and build to Rent. And this week it's all about Build to Rent btr and specifically the really, truly bizarre plan that would decimate build to Rent development. And in fact, it already is decimating build to rent development across the country. We with lenders and equity providers pushing the pause button on new BTR developments, supply reducing, not increasing, despite the legislation that it's part of the Road to Housing act, of course. And it's been a remarkably abrupt shut off, all due to one bad piece of legislation working its way through Capitol Hill in threatening a market that's built about 50,000 units per year over these last few years. Truly wild, reckless, sad, misguided, wrong, regressive and just plain bad policy. We'll talk about that today. What this legislation does, what fallout we're already seeing on the market and where the story might go from here. And I think this may be one of the more important episodes that we've done here on the Rent Roll because, you know, these aren't just buildings at risk. And investors, I tell, I tell people all the time, investors pivot, they're fine, they'll do something else, they'll go where they're wanted. But it's really about the renters in this whole conversation. There's not enough conversation about them. I've seen so whole articles, you know, one of them in a major publication talking about these developments being out of place, but not one's talking to the people actually live in these communities to understand why they're there and who they are. And that should be an important consideration as well. Let's talk about the actual people living in build to rent communities and, and who they serve, you know, and a lot of times these are families who've outgrown an apartment, but they're just not in a place yet to buy a house. Maybe they don't have the down payment, maybe they can't afford the additional cost per month. Maybe it's credit score or maybe there's not in a stage of life yet or just not sure where they want to buy yet. But either way, these are real families and real people who live in these. It's people who live in rental homes. And unfortunately, some of our federal policymakers are just serving them up as collateral damage and a reckless quest to attack and to demonize any investor with scale. And not even that much scale, by the way. It's anyone with more than 350 units, which is again Just crazy, crazy, crazy. All right. We got a great lineup with us today. We've and I say lineup. We don't usually have a lineup. We actually do have a little bit of a lineup this time. We've got Richard Ross, who heads up the nation's fifth largest BTR owner and developer, Quinn Residences. We've got a brief appearance from a repeat guest of the show, the Rent Roll, Mike Kingsella, who's really one of the most effective voices on the Hill talking about pro housing issues. And he's right in the middle of this one as well. He heads up the pro housing YIMBY group Up for Growth. And I'm also going to show you today a brief clip from a fantastic speech on the floor of the Senate from Senator Brian Schatz of Hawaii. Good stuff. You got to see this, got to listen to it. I'm going to give you a snippet of it. I hope you see the whole thing. It's really good. And then so again, we're going to give you a rundown what this legislation's going to do, what impact it's already having, why it's flawed, and also, very importantly, some facts to help press the case with your representatives in Congress or even maybe local and state officials as well, having similar conversations. So let's get into it. All right, first and foremost, a quick shout out to our sponsors. Big thank you to jpi, a leading apartment developer of the state of purpose to transform building, enhance communities and improve lives. Check them out@jpi.com and JPI is the cutting edge of some really exciting innovations in development and construction. Also, big shout out to Madera Residential, a leading apartment owner and operator based in Texas. Check them out@madera residential.com and thank you. Also to Funnel, the sponsor of our interviews, check them out@funnelle leasing.com all right, so as always, kick it off with here's a chart. This this segment is presented by Mason Joseph Multifamily Finance, the number one FHA construction lender in the Southwest for a reason. Since 2016, Mason Joseph has closed as many FHA construction loans in Texas and surrounding states as the second and third place lenders combined, according to my friends there. So check them out. Mason Joseph Joseph all right, so this week we don't have a lot of charts. In fact, everything's happening so quickly that there's not a lot of great data yet, but it's coming. But we do have just an abundance of stories and and information that's being shared about what's happening since this legislation's gone through the Senate now is with this with the House. So we're going to break down how we got to this point of a BTR ban and then of course the implications having on the market and then again I'm referencing specifically the 21st century road to Housing act which passed the Senate a couple of weeks ago and now it's with the House. It includes a requirement that anyone with 350 plus units in their portfolio, any, any single family rentals of 350 units or more than 350 units, they have to, they can, they could still build, build to rent, they have to sell within seven years. They can still acquire, build any single family rentals have to sell within three and within seven years. And again this is for anything, anything that's pre existing is exempt. Anything new would be under this seven year requirement. And since that bill passed in the Senate the impact has been very dramatic. And I, I've, I've really never seen anything like this except maybe when Covid hit where it was just immediately we saw deals just freeze up, even deals near the finish line at least for a period of time. And obviously through Covid we worked through that. It paused things a little bit. We got going again. I hope that's the case here in as well but we just don't know. The reality though is that the BTI BTR pipeline is, is pretty much shut down and that again that's about 50,000 units per year. It's, it's been, the starts have dropped off a little bit with the cost of debt re increasing and rents falling. The, the math challenge getting a little bit harder but still it's been a substantial segment of the market. And by the way like I think it's an important consideration here is that it was already hard, right? Like we need to build more housing in the long run. We talk about being a shortage. It was already getting much harder to get build to rent pencil out just with you know, cost versus rents right now. But this just makes it even harder right? In this legislation we've had now go through this through the Senate again the House not approved it and they're saying the right things in the House but we don't know how it's going to play out. So we've heard the FHA has pretty much paused all lending on build to rent projects, construction projects. We've, we're adhering for that. Other construction lenders are doing the same and you know, who could blame them, right? I mean there's, there's not even really good clarity on well, we know the when exactly this will go into effect. Is it a certificate of occupancy is at upon start of the project and so the potential to build and start something now is and potentially that law go into effect after you get, I'm sorry, before you get the certificate of occupancy. If that becomes the cutoff, because we don't know yet then that, that, that, that raises real risk. You can't blame lenders from pushing the pause button. And again, we're hearing from equity providers here saying the same thing we've heard from developers telling us that their JV partners are coming to them and saying, hey, we love btr, we love the demographic, we love the story. But we're on pause right now. Chris Nebenzol at John Burns Research and Consulting, he, he wrote a commentary piece recently. He mentioned they had a meeting with 146 different executives in BTR, BTR Development Capital. And here's what, what, what he wrote after that. He wrote, quote, congress's housing bill is already freezing home building and it hasn't even passed. So it's crazy. I mean we've literally seen the spigot almost completely shut off. A fast moving segment of the housing market frozen up and now mired in uncertainty with perhaps some lasting long term damage to supply creation, which again, we may have some damage even if this bill never passes through the House. And so I guess, let me take a step back. Let's, let's give a little bit of background here. Why is this happening? So let me give you a quick refresh. I've talked a little about this in the podcast before, but let's just take a, let's just zoom out a little more. We have previously. Okay, so let's go back to January. The President sent out a tweet or a true social post saying you want to ban big investors from buying houses. That started a domino effect. Initially it seemed that build trend would be carved out. There should be, there would be an exception. And so when the executive order came out from the White House, BTR was indeed carved out and pretty explicitly that was good. But for an SFR band to really have teeth, you have to get legislation. You need Congress to pass legislation, not just an executive order. And so reportedly President Trump called the Senator Elizabeth Warren because this is a topic that she's railed on for many years. And Senator Warren is the lead Democrat on the Senate's committee on Banking, Housing and Urban Affairs. And the President wanted the SFR ban to be attached to what was otherwise a very pro housing, pro development legislation called the 21st century road to Housing Act. So then Senator Warren, as I understand it, took the lead in hijacking that legislation and writing what becomes what became section 901 of that bill. And it's brutal. I mean it took a pro supply bill and made it a, a bill that would undoubtedly reduce supply growth for rental housing specifically. And so I've talked about some of that before, but specific to build to rent, which we've not done a lot in depth on until this point. Senator Warren, she decided she wanted to go further than the executive order and she included build to rent in the ban. And then, and, and remarkably got all but one Democrat, I believe, who we'll hear from a little bit, as well as most Republicans to go along with it. It's, and the fact that most went along with that development ban in the legislation was, was, was, was, was pretty shocking. And, and more specifically, to be fair, again, it's a seven year disposition requirement for anybody who owns more than 350 units. So you can build it because you have to, have to sell it after seven years to an individual buyer and with limited exceptions. And so whoever wrote the seven year thing, I mean they obviously, people who wrote this have no idea what they're talking about. And you can, I mean the whole section 901 is so sloppy. You know, you certainly wish people did more homework for they, we'd even, even if you want to have this end result, even by, even with that wrong goal, it still is written very poorly. But anyway, it applies to any housing structures with one or two housing units. So any detached single family homes and duplexes, if it's a triplex, that's fine. Right? You know, but don't you dare give renters detached walls. Right? I mean it's crazy, so crazy that when this legislation finally goes to the floor, another senior Democrat, Senator Brian Schatz of Hawaii, he stands up on the floor and says basically, hey, I think there's a drafting error. I think we wrote this wrong because this legislation is going to reduce supply. So let's play a clip from Senator Schatz's floor speech. His speech is more than six minutes, but I'm just going to play a couple minutes of it here because it's fantastic. And this guy, I was not only happy with what he said, but this is, you listen to the extent of his comment, the full comments, and he clearly understands housing and the mechanics of how development gets financed and built and funded I mean, and those are things you have to understand if you're going to build policy around housing. So listen to this, this idea that
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it is virtuous to try to get people into single family homes with a mortgage, but somehow there's something nefarious about providing rental housing to people who are not in possession of a down payment. They're just not. And so of course everybody strives towards home ownership. Of course we have the mortgage interest deduction, which is one of the principal means for people to enter the middle class. But if you don't have a down payment, you don't have a down payment. And we have decided, for no particular reason other than what I think is a drafting error, to demonize people who want to build rental housing for folks. By the way, if you are a low income housing tax credit developer, you're a LIHTC developer. The condition of receiving the LIHTC benefit is that you keep it in rental housing for 30 years. So what does that mean? It means all these LIHTC projects are going to die. There is literally no reason to do it this way. And it would take like a two line fix. But what we were told last week was, I'm sorry, the bill is closed, I'm sorry, we've been working on this for quite a long time. This is the first time we've done anything major on housing. Let's get it right, let's get it right. And I don't think people are kind of clocking how bad this is going to be on the supply side. And that is why 100 organizations that have all been very engaged in the developing of the individual provisions of this bill, including the national low income housing folks, the multifamily folks, all of the yes, in my backyard folks. They are all saying we like this bill because they want to be polite, because they don't like to insult people in power. But they're urging us to fix this particular section because it's going to screw up not just lihtc, but anything that is built for rent that is in the single family category or the duplex category. And to just illustrate the absurdity, by the way, if you do a triplex, you're fine. If you do a duplex, you must sell after seven years. This is positively Soviet like it is arbitrary. We have decided owning is good, renting is bad. We have decided triplexes are fine, duplexes are not.
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All right, great speech. Really great speech. Well said, Senator Schatz. And so after that great speech, Senator Warren stands up and says, hey, no, it's not a drafting error, a typo and rails against, you know, private equity. Big investors are all bad, yada yada yada. And you know, Senator Warren, she really wants all these developers to be building for sale homes instead. And obviously this is incredibly dumb and shortsighted and regressive for at least two major reasons. Number one, if you're favoring homes for sale instead of for rent, and we do confer construction, we're favoring people who are wealthy enough to buy at expense of those who aren't. We've talked about this previously is most renters do not have the credit scores to qualify for a mortgage, don't have the cash for a down payment or maybe can't afford the additional thousand dollars a month in additional costs to be a homeowner versus a renter. And so we're basically discarding them to the side. You know, that's regressive policy. Second thing, it totally ignores the reality that most BTR is built by rental developers who operate a lot more like apartment builders than home builders. In fact, the top three BTR owners and developers, according to John Burns, they only do rentals. You know, these are not big home builders. They, they aren't for sale home builders. They don't have that expertise even if they wanted to. It's an entirely different business model, different capital sources, different. And even a different product that they build in many ways. Not, I mean, a lot of these are, they're single family homes, but not, but they're not necessarily built to be for sale. You might do some things differently if you knew you're going to be selling them to, to, to, to, to a buyer. Well, you know, I mentioned earlier that this bill was in that with the House. Now, thankfully, the, the messages we're getting so far, both through all the channels, well as in the media and whatnot, is that the House thinks more like Senator Schatz and we're seeing resistance to this legislation from both sides of the aisle in, in the House and for different reasons. Some of it has to do with things, other things that are pro supply initiatives that the Senate left out, as well as of course this BTR ban. So we'll see how this plays out. You know, obviously there's a lot of scenarios here. I'm not a DC insider, I can't predict exactly what's going to happen. But, but certainly very important story to see where this goes. All right, so let's go back to how this is impacting the market today. And I want to return to The Burns commentary referenced earlier with Chris Nevinsol. Chris also wrote this. He said the bill's seven year disposal requirement has already frozen BTR capital and halted new development before it has even passed. Some capital will not return even if the bill is altered out of fear for what could happen in the future. All right, so I think if for people who are not in tune with this, this topic on a day to day basis, that may sound like hyperbole. And first of all, you know Chris and the John Burns team, you should know if you don't know them, they are not prone to hyperbole. You know, that's not their, their style. Like they, they're my kind of people. They stick to the facts and, and they do a good job digging deep into the data. But Chris is right. I'm hearing a lot of the same things and it really is, you know, very significant. So I think in particular this point around how it could have a lasting effect I think is very, very worrisome. Even if this ban never, never gets or doesn't actually pass in its current form. So I think there's a few things to consider on why that's the case. And number one is this. Investors hate uncertainty. So in past years we've seen this increased regulatory pressure placed on the scattered site significantly rental market. That's, that's what, that's what the original tweet from President Trump sought to address. Again, it was a, it's, it's still, you know, much more of a conspiracy theory than reality. I've covered a lot of that in the past. I mean the fact that we've actually been losing single play rentals, not adding them over the last 10 years, we have a million fewer today than we had 10 years ago. You know that, that, that, that's important but, but that's what it was. That, that pressure has been around for a while. It just finally kind of bubbled up to getting a presidential tweet. So that has been driving some capital away from scattered site single family rentals and in the build to rent over these last few years, it was perceived as safer from regulatory risk. It's more housing, it's net new housing. And who would oppose that? That's always, I was always a thought. Well, it turns out Senator Elizabeth Warren does and she's had powerful influence on, on this topic over Capitol Hill. And, and the fear is that even if the BTR ban is pulled out of the road to housing legislation, well, we've now opened up that box and so now can we see Cities and states that maybe try to ban btr, could Congress circle back on it? And of course that's not going to scare off all capital, but it will certainly have some influence because it removes that, that, that, that perception that it was outside of the scope of, of regulatory risk. Okay, that leads me, leads to my second point, which is again, I mentioned, investors hate uncertainty. But one of the worst outcomes here is that maybe Congress, the Hill does nothing. The Senate, I'm sorry, the House does nothing. The House and Senate can't agree. So therefore the uncertainty just persists. So that ban's not in place, but uncertainty is now deeply rooted around this issue. So the longer this goes unresolved without passing and a president signature on it, the longer that cloud of uncertainty lingers and in turn, the longer we freeze up BTR Development capital. Because people, you know, you want to know the rules of the game before you play the game you want. You don't want to make sure the goal post aren't moving on you, especially when you're writing, you know, checks worth tens of millions of dollars. So more than anything, BTR developers and capital just need to know what the rules are going to be. Then you could adapt and make it work. Does everything you build have to be three plus attached unit townhomes, or will this be scaled back to make other things work as well? Isn't three plus even the number? Does it have to be structured a certain way? Does it have to be single plaque? Can it be done other ways? So there's a lot of questions that aren't fully resolved and that uncertainty is going to have a lasting impact. And that leads me to my third point again. Uncertainty, uncertainty, uncertainty. This is also about uncertainty. And even the passage of this legislation, there's still uncertainty because this bill is so sloppily written that it doesn't give us immediate clarity on what those rules are. Again, it was written so hastily, so sloppily, and no one fully understands. I've talked to a lot of people about this. They've, you know, had the lawyers looking at and people who, you know, policy experts and builders, everybody. Nobody fully knows what exactly is banned and what isn't. And no one fully understands the rules on how these exceptions would work for properties don't have to be sold after seven years. So the legislation leaves it to the Treasury Department to define a lot of details. But the problem is these are very critical details that are very open to interpretation. And so BTR Capital really can't do much until those rules are set for Example actually I'm gonna give you three examples. Let me run you through three different examples of how the, the open ended rules are. Could, could freeze out capital. Until this is clarified, who knows how long the treasury could take to do this? The six months, is it a year? Who knows? Well number one, the bill says pre existing BTR is exempt from the seven year disposition requirement. But what is pre existing? I mentioned this earlier. If you own the land already, does that count? Does it mean you already have it? Is it after you start construction? Is it once you get certificate of occupancy? And if it's the co, the certificate of occupancy that means it affects even projects that are already planned and funded and approved and just getting ready to break ground. Now developers are, you know many, they're having hard conversations with capital providers right now but whether to delay some of those starts. Second thing is a BTR community on a single parcel excluded from the ban as opposed to individually planted homes in a traditional subdivision. You know a BTR community is more like an apartment community. One parcel or one address just with detached walls instead of attached apartment building walls. So as written it doesn't appear that those are, those communities are exempt and that creates a lot of messiness. So would those homes have to be converted to condos and sold off to individual buyers? And if so, BTR communities aren't going to get built at all because that's just not going to work. It's too messy of a process. And what about affordable housing? BTR build to rent with a low income housing tax credit. Those homes legally could not be converted to condos. That's a mess. And the third example of open ended sloppy stuff that's going to be interpreted by the treasury if it passes. The legislation says BTR developers and SFR investors could be exempt from the seven year disposition requirement if they provide a pathway to homeownership program. So that would include this specifically mentions it would include rent reporting to the credit bureaus. So that's when you know, you report. You know if you pay your rent you could get a positive impact to your credit scores. Just like your you like you just like a homeowner gets credit for paying their mortgage and many of the BTR SFR apartment operators already do that today. So that's fine. That's work. That's a win win. It's a good thing. But the legislation also says the pathway to homeownership quote may, may include down payment assistance for renters to become buyers. Now what does that mean? The Word may leaves a lot open to interpretation and yet it could determine whether or not a BTR development deal works or not and whether it gets built or not. Now you may think, hey what the heck, you know, just roll the dice, see where things fall and settle and everything will settle down. But it's not that easy because the penalties for violating the rules, no matter how poorly defined they are, are massive. If the fines are a million dollars or three times the value of the home, whichever is greater, and that's per house. So that's pretty much a killer. All right, so let me wrap this all up. Like, let me summarize the ways that this is bad. Number one, it reduces supply time. We need more supply. That's, it's more. That's what we call more. The, like the road to less housing, not the road to housing. It's going to reduce supply for rental housing in particular. It destroys economics for BTR construction unless it's townhomes with three plus units, which has not been as strong of a segment where we've seen more demand for the detached homes. Number three, for any project that does get built, it's going to displace renters through required evictions in order to get wealthier buyers into that unit instead. There's a little, you can extend it for a little bit after the seven years, but eventually you got to kick them out. Number four, it's incompatible with ltech, so you can't build BTR affordable housing in most cases. Number five, it reduces housing options for families unable to buy or unwilling to buy. Number six, and with less supply, that means it's going to be higher rents for renters. And number seven, you have incredibly open ended rules and exceptions and those rules could be moving targets based on whoever's in the Treasury Secretary at any point in time. You know, I'll close out with this. You know, last week I was talking to someone who's been particularly involved on this, on this debate on the Hill and he told me, he said, hey, it's BTR right now, but apartments could be next. And sure enough, the next day, I kid you not, Senator Warren's office announces they've sent letters to a bunch of major owners of apartments in addition to single family rentals, build to rent and even manufactured housing. But apartments are included too, like operators like Grace Star, maa, Starwood, et cetera. And she demands in these letters a laundry list of data intel from each of them about the portfolio. Things like maintenance records and communications with federal agencies. And these letters are, I mean they're just full of misinformation and misleading statements. Very threatening in tone as well. If you want the details. I wrote an extensive write up on that in my newsletter last week@jparsons.com newsletter and you get that for free. But here's the scary thing. If investors start to perceive similar risks for the apartment market as they are seeing now in the BTR market, that could have a devastating impact on a carbon supply going forward. And that's only going to drive up rents further. So always remember, I tell people, capital goes where it's wanted. If you don't want capital to be investing in housing and building more housing, then they're going to go build, you know, I don't know, data centers or E commerce warehouses instead or something else. So when you target that capital, those investors will pivot. They'll be fine. But the ones who really suffer, the American renters who are now collateral damage in this reckless pursuit against large investors. So we got to do better. We got to put the focus back on America's renters and building more housing of all types for them. And not just renters, by the homeowners. We need housing of all types for sale, for rent. We need it all, manufactured housing, everything. And you know, this btr, SFR apartment stuff, everyone's talking about the investors, but they don't talk about the renters themselves. And that's who the focus should be on. All right, so later in today's program in the interview, we'll talk to Richard Ross about the fallout on BTR development that he's seeing. I'll ask him about the seven year sale requirement, why that kills development. I'll ask him why it's unlikely BTR developers would just build for sale homes instead. And a lot more. Then we'll bring in Mike Kingsella from Up for Growth for a quick chat as well on his thoughts on where they can go in D.C. so stick with us for all that. All right, so I think it's time for some rental housing trivia. All right, today's trivia is presented by Authentic. If you've got a property that's underperforming and you can't quite figure out why, check out their multifamily leasing and marketing audit. They'll dig into your pipeline leasing funnel and comps and tell you exactly where things are breaking down, plus strategies on how to fix it. So listeners of the pod get 50% off. So head to authenticff.com, click on the banner to learn more and claim the offer. All right. So this week's question is what share of apartment units have three plus bedrooms? And this is according to research from Yardi. This is an important topic because SFR and BTR generally have larger units and more bedrooms than traditional apartments. So if we squeeze out SFR and BTR supply or at least reduce the supply growth, that could force more families into apartments. So how many apartments even have three plus bedrooms? Is it 5%, 10%, 15%, or 20%? So give that some thought and we'll come back to that in a bit. Next up in the news. All right. This segment is sponsored by telecloud. If increasing noi is a priority, your telecom contracts may be one of the easiest opportunities in your portfolio. Telecloud helps multif family asset managers consolidate Internet voice and dial tone across properties. The average cost reduction is 40% and it's often higher than that. To make it easy, they'll start with a free telecom audit to show you exactly where savings exist before you make a move. Learn more@telecloud multisite.com all right, some headlines for you this week. First one, Camden Big Change. Alex Jesset replaces Rick Campo as Camden CEO. Big news. Camden is promoting its next generation of all homegrown leadership into the C suite. One of the founding fathers of the redeparting business, Rick Campo, he's handing over the CEO reigns to Alex and he's moving into the executive chairman role. Additionally, Candida announced promotions of Lori Baker to now president and COO and Ben Fraker at cfo. And here's what's really cool and unique is that Alex, Lori, and Ben have all been with Camden since 1999 or 2000. And so really awesome to see Rick and co founder Keith Oden passing the torch to homegrown leaders. And also it's, it's the end of an era, you know, with Rick Campo stepping out of the CEO role. Rick is a legend in the multifamily business and of the big apartment REITs. He was the last of the founding CEOs still in that role. He and Keith started what became Camden in the early 1980s and took it public in 1993. So, so, so that's a pretty cool story and big congrats to Rick and to the whole team there. All right, next one comes from Bloomberg. It says Trump tax laws, affordable housing boost hits a snag. All right, so this refers to the big lihtec expansion that was part of the big beautiful bill last year. We talked about that on this podcast with Mike Novogradac and how significant it was. But as it turns out, it's complicated. And so here's Bloomberg's summary of the article. It says the US Government's largest affordable housing program has not seen the expected boost from President Donald Trump's signature tax law due to unintended consequences. The law's expansion of a low income housing tax credit has led to challenges in securing financing for deals as banks face a cap on, quote, public welfare investments as a percentage of their regulatory capital. New housing legislation aims to raise the cap and remove other constraints which could help stabilize demand and unlock more investor appetite for affordable housing developments. All right, so I believe this is actually one of the positive elements of the Road to Housing act before it was hijacked. And so hopefully they get that part resolved. But obviously that's an important story and it's not. I think the other factor too is obviously some of these higher supplied markets. We've seen the li tech rents get crushed because of all the market rate supply coming. I talked about that. A couple of weeks ago we did an episode on affordable housing. Our next headline comes from Fortune. This one says there are nearly 50% more home sellers than buyers as mismatch widens to a record 630,000. But it's only, but it's only a buyer's market if you can afford it. All right, so I saw this headline and my first thought was, well, well, well, you know, I'm proud. There's probably some homeowners out there wishing more investors were still buyers. And you know, that's the part of these investor bands that don't get talked about as much. In a weak buyer's market, investors can be a release valve and an exit path for homeowners to sell their homes when they're unable to find buyers. And that's why I think, you know, I've made the case of four. I think the best compromise here on, on this investor ban is for a 30 day first look policy, 30 or 45 days, whatever it is, where investors of any size can't buy homes or make offers until 30 days after a public listing that addresses the root concern about the competitiveness of it without all the significant consequences and unintended collateral damage on sellers or on renters. All right, our last headline comes from the Cato Institute. It says Spain's rent control is failing. Argentina shows a better way. All right, so now we have exhibit number what, 71,981 on how rent control backfires on its own cause ultimately how it's junk Science, it just doesn't work. It says following the introduction of rent caps in the region of Catalonia in 2024, the supply of rental housing has declined by 23%. Even more dramatically, the city of Karuna, I'm probably butchering that. In the region of Navara, saw rental supply fall by 44% and 51% respectively only six months after they designated areas as stressed and also impose rent caps. So in a country of an estimated deficit of 700,000 housing units, rent control is making things even worse. And then it contrasts that to happen in Argentina, which I've talked about previously in this podcast, which they removed rent control and now have seen a massive boost to supply. In fact, it says supply increased by 180% less than a year and a half later as you'll brought homes back into the rental market. So it's a good reminder that rent control is anti science. It's just bad lazy policy. Just build a lot more housing. And this is one of the most well researched topics in all of housing and just astounding to me that people, whether in Spain or here in the US continue to ignore all the science and all the research. All right, next up, good news. And this is when we get a highlight good news happening across the industry. Talking about a lot of challenging news just now. Now we got some good news. Okay. This segment is presented by my friends at Apartment Life. Apartment Life coordinators help apartment owners care for residents by connecting them in meaningful relationships. And that benefits everybody from the residents to the on site staff to even the investors in the comp in the community's bottom line. So if you're not already working with Apartment Life, check them out@apartmentlife.org It's a family faith based non profit. It's been around for three decades. They do great work. So this week's good News comes from MAA, the nation's largest apartment REIT by unit count. So since 1994, Ma has had this program called Open Arms. If you're not familiar with it, it's a really cool mission. Its mission is to provide a home away from home for those who must travel to receive medical treatment. And so this happens when you have, you know, a medical crisis and it takes patients and their families away from their home and they go to another city and in search of specialized treatment. And so to lessen some of the burden, emotional and financial burden on these families, Open Arms provides a home away from home at no cost to qualifying patients and families that are in this situation. So they're given a fully furnished two bedroom first floor apartment stocked with linens, kitchen items and other miscellaneous necessities. And the entire rent, along with basic utilities are paid for by MAA and the Open Arms Foundation. So MAA started doing this in 1994. Since then, check out these numbers. They've served 3,646 families for a total of 314,687 nights stayed and they've done it across 12 states. So super cool. Love it. And that's certainly good news. Thank you to maa. Big shout out to MAA for doing it. And also if you have other if you have good news to share, email it to Info and we may feature it on a future podcast. All right, let's get back to our our trivia question for the week. It was what share of US department units have three plus bedrooms according to Yardi? Is it 5%, 10%, 15% or 20%? And the correct answer is B 10%. So again, that that's just 10% of US apartments have three plus bedrooms. And that share is probably even lower for most modern apartments built over the last 10 to 15 years as the the the real shift has been to ones and twos and especially ones. So this is a real important consideration in the SFR BTR debate. I know a lot of the yahoos out there don't think renters deserve to live in a single family house. And they're not going to say it directly, of course, but they're saying it through their policies. But the reality is many of these families have outgrown apartments and there just aren't enough family friendly apartments out there to be a value, to be a viable option for most of them. All right, next up, it's time for today's interview sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your property centralize operations and automate everyday tasks, visit funnelleleasing.com all right, so we got two for the price of one today and that's a really good deal since this podcast is free anyway. Two for one. So our primary conversation, our longer one about will be with Richard Ross, who heads up Quinn Residences. Quinn is a big BTR developer and and the fifth largest BTR owner according to John Burns. And so we'll get Richard's take on all the craziness about BTR in D.C. right now and some of the efforts behind the scenes to try to get that fixed and Then we'll have a conversation, a really short conversation with Mike Kingsella, who heads up the pro housing indy group advocacy group up for Growth. And Mike is actually returning guests of the Rent Roll. We had an episode with him last year talking about the Emby movement. And I asked Mike to come back because he has a unique angle, not being in the industry itself, but being on the front lines of the advocacy for just getting more housing built. And he's really tied in, in the D.C. policy circle. So he'll give us his intel on where this bill is headed and also offer some advice on the messaging that resonates best with members of Congress. So stick with us for that. But let's jump in with Richard. All right, welcome to the interview portion of today's podcast. And I am honored to welcome in the head of Quinn Residences, Richard Ross. So, Richard, thanks so much for being with us today.
- [40:00]
C
Thanks for having me, Jay. I'm honored as well.
- [40:03]
A
Ariel, before we get into the hot topics of the day, tell us some of your story. How did you get into the build to rent space?
- [40:12]
C
Well, I'll give you a very, very top line. My father was a home builder, interestingly enough. And he was in the last oil embargo, interestingly enough. Timely. Right in this, in 72, 73, he lost everything. And so I became an accountant. And then at some point in the early 90s when all the multifamily REITs, you know, Equity One and all those multifamily REITs were being formed, they DNA kicked in and I got into the real estate business. I find it interesting going back that far now, what, 30 plus years? Back then, public institutions only owned about 5% of the apartments. Now they own about half. So it's interesting to watch that 30 year progression. And I believe that's at least before this legislation where we were headed in the sfr. Built to rent space.
- [41:02]
A
Yeah. So then tell us about your company, Quinn Residences. What do you all do? What's the story?
- [41:08]
C
So Quinn was started a month before the lockdown in 2020. So we've been at this a little over six years. Have we have $1 billion equity commitment that's been about three quarters of that has been deployed and committed. And we have invested that in 5,200 homes across five states, 33 communities. And again, we focus on what I call dedicated rental communities. So build to rent contiguous communities. We don't do scattered site or buy the last, you know, 20, 30 homes from, from a home builder. These are discrete communities.
- [41:46]
A
Yeah, Single parcel for the Most part, yeah. So it tell us a little about your portfolio. Like what, what's your typical product and what markets are all operating in.
- [41:58]
C
Sure. So we're in five states. Carolinas, north and South Carolina, Georgia, Tennessee and Central Florida. We don't go much past south of central Florida. And as I said, It's 33 communities, about half townhomes, about half detached. Some are single plaid, as you alluded to. Some are individually platted, which becomes important when we start talking about this legislation. Very few. I think we have like six two bedrooms. These are exclusively three and four bedrooms, typically two car garage, fenced backyard. We put a pretty high technology package in the homes as well. And again, our average age of our homes is less than a year and a half.
- [42:42]
A
Wow. Yeah, you'll be able to lot in a short time. And then another question on the portfolio. Let's talk about renters because I think there's a lot of. And I will get into more legislation in a moment, but there's a lot of talk about, hey, all these people will be buyers. If they weren't renting and living in your build to rent, they'd be all be for sale and they'd live in there. But like, tell us about who lives in your communities and a little bit about like the necessity of these rental options that they choose.
- [43:06]
C
Sure. So based on our, we now have six years of data. Right. Based on our, our resident profile, we have about a third of our residents who are renters by choice, meaning they have no desire to own a home. They're in our homes for one of two reasons. Flexibility. Meaning they might live in Atlanta, you know, for three years and they might have to move to Denver or Dallas. And so they want that flexibility, which homeownership doesn't really give you. The other thing that they're in, the renters by choice are in for is lifestyle maintenance, free lifestyle. They don't have to worry about if the toilet gets clogged or mowing the lawn or anything like that. So that's, that's a third of our residents. Two thirds of our residents eventually have indicated they may want to buy a home. The reason they can't is down payment. Right. Typically credit score and then just overall affordability. As I think you pointed out in the past in your diner, our homes are anywhere between, depending on the market, 40 to 60% cheaper on a monthly basis to rent from us than to live in the exact same home literally next door if you were to own that home. So we do have residents to stay with Us three, four years, save up, repair their credit, save up for the down payment. And that's still about 25% of our move outs are for people who are, who buy their first home. But again living in our home allows them the opportunity to save the money to repair the credit to be able to also explore the neighborhood. Right. Make sure they want to buy there and then purchase the home. And then we have, we do have a lot of sort of 55 and over empty nesters who again are renting by choice. They've sold their primary home, you know, put the money in, in the stock market or bitcoin or whatever. And again like that, no maintenance lifestyle. So the demographic is really interesting. We have a lot of nurses, firefighters, law enforcement, first responders. The average age of our resident today is some just over 38 years old. So yeah.
- [45:17]
A
And you've built a product that you know, isn't really comparable to a traditional apartment. Seems like there's a contingent today that says hey, renters just live in multi family buildings. But if you have a lot of three plus bedroom units, like there's not a lot of apartments that have those especially know, with you know, in newer construction or whatnot.
- [45:34]
C
Yeah. And, and the attraction of our product. Right. Is the fenced backyard, the main attraction and the two car garage. Right. And there a lot of these folks are coming out of apartments or home. You know, during COVID obviously people didn't want to share hallways and things like that. So that sort of accelerated the move out of traditional multifamily and into sort of the built to rent product.
- [45:58]
A
Yeah, there's that stage of life where they're ready for a little more space, a yard and detached walls. It makes sense to most of us probably listening if not everybody in D.C. so let's flashback to two months ago. There's a. I don't know if you call it tweet. There's a post on Truth Social from the president that says basically that homes are for people, not corporations. As if renters don't own aren't people who live in these homes. And all of a sudden the single family rentals industry is in the spotlight. You know, take us back to that point in time. What was your initial reaction and what, what, what did that before we get into all the build to rent stuff like what, what was, how did that impact the business and your investors initially when you, when that first came out? Sure.
- [46:43]
C
And this has been brewing, if you will, for a while, meaning several people were sort of upset set politically with, you know, the the establishment of the SFR business which was done after the GFC as you well know and, and institutions buying up a bunch of homes that were either in foreclosure or. Or highly stressed you one could argue. And, and I am of this opinion that they put sort of put a floor on the housing crisis back in 08 and 09. Having said that there's a perception that they were taking homes away from first time home buyers and so that started to build over the last couple of years culminating in the true social post by the President saying homes are you know, for people, not corporations, people happen to live in all of our homes. But regardless. But interestingly enough in that initial post was an, was an exemption for BTR an exclusion for build to rent because I'm obviously it adds to supply and then over the iteration that that post came out, literally I don't. I might mess up the dates but within a week or two of the House passing their bill, the 21st century housing bill which had nothing about SFR or investor ban or anything like that, a lot of really good stuff in that bill but the timing overlap the post. So out comes this post, Tim Scott's bill in the Senate. He's been trying to get this bill through for it's one of his sort of poster children, something near and dear to his heart. And so once that the White House sort of supported an investor ban all of a sudden he needed, this is my understanding again one man's opinion. He needed the votes in the Senate to get the bill through. So he enlisted the help of Elizabeth Warren, you know, Democrat, and that's where we got this seven year disposal requirement which is causing all of the consternation in the industry.
- [48:47]
A
Yeah, so let's talk about that. So initially like, like you said it was expectation where hey, we're going to curtail buying of existing scattered sized single family homes. You know I think across, you know the industry, the media, the pro housing MB groups, I mean left and right the expectation was that new construction would be carved out especially if on a single parcel build trend communities and then all of a sudden we find out it isn't. So take us back to that. Like what impact did that initially have? How much did that change your world
- [49:19]
C
so dramatically and pre. Almost instantaneously. What's so interesting is and it took a week or two for sort of the to. For everybody to read and digest this proposed legislation which is very poorly written. I mean if I wrote a high school book report and as poorly as that I would have gotten An F. So really poorly written. So it took a while for everybody to sort of understand what the consequences were. But as soon as we did, it put almost immediate kibosh on equity investment. I mean my investment committee was like we can't approve new deals until we have some clarity here. Then it sort of trickled into the debt markets and eventually, as is custom, it took the agencies that were the last. But my understanding today is that hud, Fannie, Freddie, none of them are underwriting new SFR BTR loans. So the market is essentially seized both from an equity and a debt capital market, particularly for any new deals. And so we have one deal in our pipeline, it's a townhome deal in Charlotte. Presumably it would be grandfathered under this legislation. Right. Because the legislation says at least as it stands now, anything you own as of 180 days, six months after enactment, sort of grandfathered in. Okay. Anything new, depending on what product it is, is subject to this seven year disposal requirement. But obviously when you put a time limit on an investment of seven years, particularly when a lot of these things are financed with 10 year financing, it really creates problems. So long winded way of saying the equity and debt markets are seized until this legislation gets some clarity, which may take a month, it could take three years. Oh yeah, it just depends on. Right. It's sitting in the House now in the House Financial Services Committee. They are not happy with the bill. They don't like the seven year provision. But there's other things in the bill they also like. Meaning the community banking regulations that were in the House's original bill didn't make it into the Senate bill. And there's another, this digital currency provision that was in the House bill that didn't make it. There's three things that are sort of trading cards, I would almost say, or chits. And so who knows how that works through the horse trading, how it works through to get a bill passed of the House. If, if it gets passed as is because community banking wins and SFR loses, then you got the treasury has to write regulations to interpret this really poorly written legislation that takes six months at best, then the industry's going to sue because of the potential that this is a, a violation of the fifth Amendment, you know, the Jenkins clause and the Constitution. And that takes a couple years. I mean it's probably going to go all the way to the Supreme Court. So hopefully we get this thing resolved in the next, you know, before Congress goes out on summer break and then you have an election. So if it doesn't get dealt with before they go on summer recess. We're probably looking at, you know, after the election.
- [52:54]
A
Yeah. So a couple of things to kind of get into there. Get into that there. So first and foremost, like this uncertainty, you know, talk a little bit about the impact that has on investors. For it's not just you obviously for Build to Rent in general. It's like uncertainty. Investors hate uncertainty. So the fact that this could linger on for years, that pretty much freezes up development cap. And this is supposed to be a pro supply bill. This essentially kills supply for years, right?
- [53:21]
C
It could, absolutely. And look, I just came from the IMN conference, the Build to Rent conference in Nashville last week and talk to a lot of many of my peers. We all face. It's not like this is unique to Quinn or Built to Ren or it's affecting everybody. And even the apartment guys are a little concerned because they're in our business. As you well know, some of the big apartment REITs have dipped their toes in the build to rent an SFR business. And so they're concerned. So it's not just the 4% of SFR owners, it's really everybody that's in any sort of multifamily housing business.
- [54:02]
A
Well, especially now with the Senator Warren's office sending out threatening letters to.
- [54:06]
C
Yeah. This morning. Right. A letter to, I don't know, was it 13, a bunch of different big, big players saying what are you doing and how are you operating?
- [54:15]
A
Yeah. So you mentioned comment about the seven year requirement. I want to ask, let's talk a little about this for those of you, those people listening who don't understand this. Like, I'm guessing whoever wrote this probably heard someone say that a lot of institutional investors typically hold for about seven years. And they took that way out of context and they say, well, hey, wait, you told us that seven years typical hold period. So that's fine. You mentioned that a lot of these loans are 10 year. But like talk to us about why. For people who don't understand this, like why doesn't a seven year window, why is that a total killer of these new projects?
- [54:48]
C
Well, there's several reasons. One is the financing, right? Yes. You can finance for 5, 7, 10 years. And so that's an issue. A bigger issue is if you put a seven year clock, it takes about three years to develop and stabilize a community. So if I buy land that's entitled right after this legislation was enacted, it takes two, three years for me to fill the right to build it, to fill it up. So now you have four years left. And maybe I do have a five year loan or a ten year loan. So that's an issue. The other issue is what if in seven years the market is depressed and I can't sell these homes for a price that exceeds my cost and then you're going to force me to sell them at a loss. You also have the other issue of residents being in the homes. And yes, there are some sort of provisions in there that allow you to extend leases or residents not to be forced to leave. But when you eventually force these residents to leave, where are they going to go? And the issue with that is they're living in our homes, as we said earlier, because it's much more affordable than owning the home. So it's just bad policy. The seven year is seems arbitrary. And you're probably right, that is probably the origin. Someone said, well, some of these fund lives are typically seven years, but that there's always extensions to those fund lives.
- [56:17]
A
Yeah.
- [56:17]
C
For market reasons. Right. And so it just did not make any kind of policy sense.
- [56:25]
A
Yeah. And the other thing that I'd love for you to mythbust, Richard, is that there's people in Washington D.C. and in cities, councils and state legislators across the country who think that, that if Quinn Residences were not building rental homes, you'd be, all of these would be for sale, in your case, condos. You'd be building condos in all of these states. Is there any chance you'd actually build the condos at the same number that you'd build rental homes?
- [56:53]
C
No, no. I mean, not at all. This entire business, my company and many, many like me, were formed and the underlying business model is three and four bedroom in single family homes because that is what the demographic, what the resident wants. We're just responding to a market need. If you tell me I have to build condos or apartments, that's not a viable business because that's not what the resident demographic that we serve needs. Trying to legislate, I mean, it's been proven many times over, rent control being a perfect example. Trying to legislate what people want. That assumes that everybody wants to buy a home. And I know there's a number of people that do, but as you've pointed out, I mean, we're short 5 million homes in this country. The solution is more homes for people to buy or rent. And as I, as we talked about earlier, before, before we got on the air here, about a third of this country has been renters for the last 60 years. And that, that doesn't change much. So that's 1/3, 2/3, 1/3 rental, 2/3, owner is pretty consistent.
- [58:07]
A
And ironically, sorry to empty. We're, we're higher today on homeownership than the long term average. Right.
- [58:13]
C
Which is, I wish I will say when I sit down with some of these lawmakers and explain that to them and the fact that we're providing an affordable alternative and what bill to rent is, they're like, oh, I had no idea. But again, politics, you know, has sort of taken over and hopefully now that the industry is aligned and we're in the House with the Financial Services Committee where there seems to be some understanding of the problems with the bill, we'll get it resolved without it taking two or three years.
- [58:53]
A
So, Richard, one more thing on the, on the condo side, I think other thing to make clear is if you have a community that's platted on a single parcel, you are building rental, single family homes. I think people need to understand that if you were to build, even if you wanted to build condos instead, that's a very different business model. You have to fund it differently, finance it differently and probably build differently. And so is it, I mean, I do agree. Is it fair to say that we're not, it's not a like for, it's not just an easy switch. It's not just like, oh, we'll make these for sale instead of for rent. Because I feel like people are just really oversimplifying it to, hey, these can just be for sale.
- [59:28]
C
Yeah, no, you're absolutely right. I mean, we build a different product than for sale product and a starter home builder, you know, these production home builders, we build a product that costs more because we build more durable units, obviously, because we're going to rent these for 10, 20, 30 years, just like the apartments have been in business for, for that long. So the design is different, the layout of the homes is different, the layout of the community is different, and the legal zoning is obviously different. So it's not, you can do this or do that, and if everybody just built condos, we would sell those and make the same return on our investment. It's just not true.
- [60:11]
A
Yeah, absolutely. I wish my people knew that. Richard, another question for you is you're talking to people, some of your peers and talking to capital partners. Do you think if there's a period of uncertainty, this isn't resolved? Is, is there at least you sense some clarity that, hey, you know, there's a lot of demand for detached homes. But that's not, there's Too much question on that. Does the industry just shift to building more attached townhomes for the time being or is even that kind of somewhat in peril in your view?
- [60:40]
C
Well, it's pretty clear in the legislation that townhomes are existing exempt. Yeah, it's, it's. And a townhomes, a building that has three or more units, at least that's how the trouble with, with investing capital and building on that assumption, okay, we're going to build townhomes is that's subject to local jurisdiction. You might not be able to get that density.
- [61:02]
A
Good point.
- [61:03]
C
Suburban Charlotte or suburban Raleigh or suburban Dallas. Right. Because that's a local. They, they may not like that density. Right. Because townhomes typically have more homes per acre than you do on detached. So that's, that's one issue. The other relates to how, how these things are planned. And so I think it's a real problem to try and legislate what we're going to build or not build and the market won't just pivot to something else. Because look, they could change the legislation and say, oh, a townhome is, you know, has to be this particular thing or that. Or they could say, as you said, they, maybe they start going after apartments and townhomes are no longer excluded. And then I've invested all this money in this law that says I can build townhomes. And. Well, we were just kidding. So.
- [61:57]
A
Yeah, well, and one more thing on this, it's like, it's, it's so ridiculous and I know I'm preaching to the choir that were even people are talking about like, like, and I want to keep picking our too much, but Senator Warren is basically saying. And she went on CNBC and essentially said a home is for home buyers. And the implication of those who are wealthy enough to buy a house and that's a detached walls. If you're a renter and what you want to want to build for renters, you got to build attached. You got to build apartments like multifamily is for renters. Detaching a family is for homeowners. It's an incredibly regressive concept and I'm sure that has to frustrate you as well.
- [62:34]
C
It does. And look, this whole industry was built on folks who can't afford to live in the neighborhoods that she's saying build detached individual homes so that they can live in those neighborhoods. These are firefighters, these are law enforcement, these are nurses and first responders. And they want the ability to go to the better schools. They want the ability to be, you know, closer to the, to, to their work and again have the fenced backyard and a two car garage. So who, who are we to tell them that they should be living in these homes?
- [63:10]
A
Yeah, no, I agree. It's, it's, it's incredibly unfortunate the narrative spun so out of control. And so Richard, thanks for fighting the good fight. I know you're active in some of the policy on DC on this and keep fighting the good fight and hopefully one of these days we'll be back on talking about how facts and truth and real people actually ended up mattering in the long run for a better policy. Right.
- [63:36]
C
And important things like rent growth and occupancy and things like that that you study on a daily basis.
- [63:42]
A
Absolutely. Well, thank you, Richard. Appreciate your time.
- [63:45]
C
Take.
- [64:06]
A
I hope you enjoyed that conversation with Richard. Man, what a crazy time to be in the BTR development business right now. So our next conversation is going to be with Mike Kingsella again. Mike's the head of up for Growth, and we'll talk to Mike about what this initial, what the original Road to Housing act was supposed to do, a very pro housing bill that Mike and others supported and how it went wrong and what he thinks is going to happen ultimately and also what messages might are best resonating with Congress. So here's my conversation with Mike. All right, we're now joined by Mike Kingsella for Up for. With up for Growth. Excuse me, Mike. A lot of hot topics to cover in a short time. But before we get into that, for those of you, those who didn't see the podcast that you came on previously or just haven't seen all the great work you're doing. Give us a little background of yourself and on up for Growth, please.
- [65:10]
D
Sure, Jay. And thanks for having me again on the rent roll. By way of background, I've worked in Housing since 2003. I've worked in lots of different aspects of the field, from debt and equity finance to public finance on affordable housing developments, to work inside one of the nation's largest multifamily merchant builders, as well as enrolls in accounting and consulting. And in about 2017 had the opportunity, with a number of our founding up for Growth members, to form this organization. And really, the purpose of up for Growth is to fight for policies that are going to tear down systemic barriers and create lots more homes across the country in all shapes, sizes and price points to meet America's current housing needs. Obviously, we have a long way to go on that front, and that's a key reason we're so focused on moving substantive federal pro housing policy.
- [66:11]
A
Yeah. And you all been doing a great job of that. And you know, I've been a big fan of your work for a long time. And one of the things that you all were really, you and others were on a really good track with was the Road to Housing act prior to the addition of Section901, which we'll get into a moment, but let's talk about what was that legislation initially intended to be about?
- [66:31]
D
Yeah, the original intent of the Road to Housing act was very simple and frankly necessary to encourage more states, more local governments to remove structural barriers to the housing that we need. It's about unlocking supply, more homes, more places of all shapes and sizes and all price points. And specifically it had a whole basket of policies aimed at eliminating federal red tape, for example, that slows down affordable housing development around creating incentives and resources for communities to implement pre approved building designs, the type that a builder can go to the permit counter and put shovels in the ground same day. It also included some really enterprising accountability policies such as the Build now act, which is really a carrot and a stick as a carrot, rewarding communities that are building more than their fair share of, of housing.
- [67:30]
A
Right.
- [67:30]
D
That are jumping on the housing abundance bandwagon and actually taking money away from jurisdictions that are high rent, high job and population growth market, but that are artificially constraining developers from building the homes that are needed.
- [67:46]
A
Yeah, and it really was a lot of there's so many good things in there that collectively added up to a much needed reform. But obviously that changed pretty quickly and kind of got hijacked by section 901, which was the section around institution. Well, really just large investors in single family housing as well as build to rent. And so in your blog you called it a supply bill that actually reduces supply. And for those of us, you know, in the, you know, no housing, it's rather obvious that that's the case. But I'm curious, you know, you're talking to a lot of people in D.C. on the Hill, and when you talk to people there who are supporting these limitations on build to rent in particular, what is the rationale?
- [68:31]
D
Yeah, well, you know, when you spend time in D.C. you'll realize that the, the rationale made for this provision isn't completely irrational, but it's absolutely incomplete and misses the fundamental market dynamics that our housing ecosystem is built on. Right. So by that I mean, you know, really three things. Right. First, there's a perception that institutional capital is Crowding out home ownership in that perception, for example, is what drove President Trump's call to limit large institutional investors in the housing market. In his words, stop Wall street investors from competing with Main street home buyers. Two, there is a political sensitivity to, quote, unquote, Wall street buying homes. We see that certainly in the rhetoric coming out of Senator Elizabeth Warren's office, the rhetoric coming out of folks like Senator Bernie Sanders of Vermont. And third, there is a belief from some, but I would say this is not a widespread belief that BTR may distort housing markets. And so the problem is that these concerns are being applied to a segment that is actually creating new homes that wouldn't have been built otherwise. And I would go further to say that these policies are, whether intentional or unintentional as they have been proposed, constraining the singular segment in the multifamily market that is building family sized rental communities and rental homes, which every mayor, every city council, every county commissioner I speak to says that's the most glaring need in my community. And so it's important to note here that build to rent is delivering housing in places where traditional for sale or multifamily product isn't penciling. So restricting the development of this type of asset class through federal policy doesn't protect the market. It's actually shrinking it. And these are the messages that we're carrying on the Hill that are resonating in an increasing number of offices, particularly in the House of Representatives where this bill is currently pending.
- [70:50]
A
Yeah, those are all great points. And so I guess as a follow up question, for those who are listening and want to be active or those that were maybe already active trying to talk to their, their elected officials, what's the best way to engage them? And what messages are most likely to resonate with people who just, frankly, it may not be well informed because it's, it's, it's a topic that I think people just, you know, they hear the message and sort of makes sense until they learn facts like what you, what you just described. So what's the best way to push back in the, in a, in a way that's productive?
- [71:21]
D
Well, I, the first thing is I would just share, you know, you don't win an argument by telling policymakers that they're wrong. You're, we're going to win by helping them solve the problem, problem that they are trying to solve. Right. So I would, you know, Senator Brian Schatz, for example, characterized this as a drafting error. Right. Of course it's incorrect. You know, you could, you might say that, you know, folks are missing important pieces in terms of how the housing market functions. Right. So the, the real issue is that, you know, our nation is experiencing a structural shortage of homes. So the question is then, is this capital good or bad? It's will this capital enable the country to produce more homes of scale? So that's, that's where I would, would put the starting point. What's been missing in large part from a lot of the conversations happening in Congress is a shared data driven framework that connects the intention of the policy to production outcomes. And that's how we're working it up for growth through our work like housing under production through tools like the Turner center housing scenario planner or even the housing calculator that the Turner center built previously. And what we can show and what we urge all advocates to show, clearly, incredibly, through these tools and through all of the information on the BTR market that we have at our disposal is that restricting the supply of, of build to rent communities reduces options, it slows production and ultimately will increase housing costs. And that's, you know, with those arguments, that's where the conversation can change. So we need more voices from the development community in this conversation. That's absolutely critical. And you know, like the old political adage goes, you know, when you're not at the table with policymakers, you're often on the menu. And so I would encourage listeners who want to engage constructively, who need help figuring out which offices and which players in Congress to reach out to directly. I would encourage folks to reach out to me at up for Growth. You can also sign up for our newsletter@mikekingsella.com to sign up for the latest updates on this issue as well as what's going on in Congress writ large when it comes to housing supply policy.
- [73:45]
A
Yeah, that's a great point. I think given the fact that the league says important doing the right way. I'll give one more, Mike, which is that the top three builders for build to rent have never built any force of housing at all. And there's this perception they just can go back and forth that does not happen. So Mike, one last. Yeah, one last question for you, Mike. You know, obviously it's with the house right now, as you mentioned, and there's a lot of other stuff that's, it's, it's close that impacts what happens in D.C. what happens next and how do you see this playing out?
- [74:17]
D
Well, I think this is far from settled. What we're seeing right now is a collision not just between sort of the housing policy drafting and the realities of the capital markets and implementation, but a collision of policy preferences between folks in the Senate and their counterparts in the House of Representatives. So in the near term, there will continue to be efforts, which we are fully engaged in with our coalition to carve out to create a clean carve out for build to rent production from the current section 901. But zooming out there, there's sort of a bigger takeaway on the landscape, which is we're entering a period where housing policy is going to directly shape the types of projects get built or don't. Right? So the types of federal actions that are occurring now, we've got to get right if we're going to achieve the desired outcome of more homes for all Americans of all prices, shapes and sizes. So, so, you know, Jay, I would encourage again, listeners, you know, this, this is a signal that we can't afford to wait to be reactive. We need to be organized. We need to be aligned with all stakeholders both inside and outside the development community and engage the federal level in a much more intentional way because Congress is wading into issues pertaining to land use, to zoning, to capital markets, to tax treatment, even in the case of this, a de facto federal ban and for sale requirement for a very specific multifamily asset class. So again, that's what we're doing here at up for Growth. We're focused on bringing together all of these voices between builders and civil rights and community advocates around one goal, which is to ensure that the federal policy that moves is policy that expands housing supply at scale.
- [76:20]
A
Well, Mike, thanks for all the work you're doing on the Hill. Really appreciate you, everything that you're doing and other groups as well. So hopefully this turns out for the best for America's renters and for building more housing.
- [76:33]
D
Jay, thank you for your leadership. We appreciate being on.
- [76:57]
A
All right, big thank you to Mike and to Richard for being our guests today. I hope you enjoyed those conversations. And also a big thank you to jpi, Madera, Funnel, Mason, Joseph, Authentic and Telecloud for sponsoring today's podcast. Thank you to all of you for making us part of your day and we'll see you next time.