The issue of affordability—and how it taints the public perception of our industry—isn’t going away anytime soon.
As the words “rent control” creep into the political dialogue of more cities across the nation, we’re not doing ourselves any favors by doing ourselves so many favors.
In the Bay Area of California, several towns, including Richmond, Pacifica and of course, San Jose, are mulling rent control measures. To the North, Seattle isn’t far off. Are they bellwethers?
At last week’s Multifamily Executive Conference, I asked six of the nation’s top CEOs how they thought the rent-control groundswell would play out. And I was shocked when Michael Schall, CEO of Essex Realty Trust, said that he decided to cap rent renewals at 10% in some of his markets.
“It's pretty controversial, our investors are hammering us over this,” he said, “but we're doing it out of concern of this affordability issue.”
Think about that—one of our industry’s biggest, smartest public companies is capping renewal rates, not because it has to, but because they think it’s smart business in the long run--and a way to prevent rent control measures from taking root.
"Affordability" is a relative term: It has a million different meanings. When I was a young(er) reporter covering the affordable housing industry, I would bristle every time Fannie Mae and Freddie Mac said that more than 95% of the apartment communities they finance are “affordable.”
“What do you mean by affordable?” I’d ask.
Problem is, nobody in the affordable housing industry defines affordability that way. Nobody. Not a soul. Some would say that's the definition of Class B market rate.
But it was good PR for Fannie and Freddie (still is), and those in the media who don’t know any better will rewrite that press release ad infinitum.
Those who advocate for our industry say that by the very nature of what we do, we're providing affordable housing. Which is a bit disingenuous, but it plays well on Capitol Hill.
The entire market-rate ecosystem is allergic to the affordability issue. And by its very nature, the market-rate sector should be allergic to it. By its very nature, it's the opposite of—and the reason there's a need for—affordable housing.
Fannie and Freddie lenders were very active in competing for luxury Class A+ deals 10 years ago, and even given the machinations of government conservatorship, not a heck of a lot has changed since.
And while I understand that as owners and operators you have to strike while the iron’s hot, you also have to be careful: The iron burns both ways.
Michael Schall should be applauded for his stance, not just because he’s one of the most effective, efficient and respected REIT CEOs in our industry, but because he’s right. It is the right thing to do. Not just that, it’s the smart thing to do. And I would never bet against Essex.
So, maybe instead of making excuses, instead of redefining affordability to fit our agenda, we should take a page out of Schall’s book, and do the smart thing.