Economists agree that a big part of the economic crisis we’re in is connected intimately to the housing crash. As homes lost their value and as people faltered under home debts they could no longer pay, jobs were lost and the entire nation’s economy suffered. Despite this clear connection, not much is being done to help former homeowners recover. Likewise, not much is being done to keep current homeowners who are still falling behind on their payments from falling into the same trap.

Many of the jobs initially lost in the economic crisis were closely related to the housing market. People who worked in construction lost their jobs when the construction of new homes dropped off. As fewer people were able to buy new homes, industries that marketed goods to home owners also suffered. This domino effect eventually reached nearly all industries across the nation and also adversely affected the economy abroad.

Fixing this troubled economy is not an easy task. Economists and lawmakers disagree about how to go about fixing the problems that we all face and the argument seems all but impossible to resolve. There are many different issues and addressing one of them will not necessarily fix the others.

That said, one area of the economy that definitely deserves more attention, especially when discussing a plan to create more jobs across the nation, is the housing industry. Directly addressing the housing problem may be one way to solve many of the nation’s economic issues, especially given that this crisis caused so many of the problems that we are currently facing.

The government has spent a great deal of resources bailing out large banks after the housing crash. These handouts were justified in that they prevented many banks from going under. The failure of banks was a huge contributor to the Great Depression, a scenario the US Government was right in wanting to avoid again.

Obviously, banks were not the only entities damaged by the recent housing market crash. Individuals lost their savings, their belongings and then their jobs as the economy went from bad to worse. In many parts of the country, people are still in danger of losing their investments and the job market continues to hover at a national average of about 9 percent. While there are individuals that do receive government assistance as they struggle to pay their mortgages and hold on until they can find new jobs, the vast majority of struggling Americans receive very little or no assistance. Obama is, of course, aware of this problem and has stated that he intends to keep “responsible homeowners” from losing their homes, though an action plan for doing so remains elusive.

And the question remains, with such a damaged economy, where do we put the first band-aid when trying to quell the financial bleeding?

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Mortgage Rates

When the news first hit that the debt ceiling would be raised, economists were concerned that long-term mortgage rates would begin to increase. After a week with a higher debt ceiling, however, it doesn’t appear that mortgage rates have increased. The number of people buying new homes remained steady, though low, which could indicate that rates may remain stable over the next few months. If rates do rise, it could send potential home buyers back into the already saturated rental market, forcing rental prices up as the demand for rentals surpasses the supply of units available. This situation would benefit multifamily companies, though it may make it harder for people already struggling to get by to afford rent.

Stock Market

Stocks have been falling since the announcement the debt ceiling had been raised. For many people, this could mean a loss of net worth as well as a loss of income. Families that are already teetering on the edge of financial stability could find themselves in financial trouble over the next few months, a situation that will likely lead to further foreclosures. These families are likely to move into apartments or other rental units in order to save money and get back on their feet. Again, this increase in demand will lead to increased rental rates in many parts of the country.

Uncertainty in the Global Market Place

The United States was recently downgraded from an AAA credit rating to an AA+ rating. Though this doesn’t seem to have had an effect yet, it’s not clear how this downgrade will affect the way foreign businesses invest in the United States. It is possible that this downgrade will not have much of an effect on the day to day lives of Americans but it is also possible that it could lead to further financial hardships, whether through the loss of jobs or the devaluing of business and property. If this happens, it could hurt the already ailing housing market which would push more people into the rental market. Only time will tell how the global community will respond to this downgrade.

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What is a debt ceiling?

Congress limits the total amount of debt that the federal government can carry, and it periodically increases this amount as the government comes close to reaching it.  Currently, Congress allows for $14.3 trillion dollars in debt, but the United States is coming perilously close to reaching this level; Treasury Secretary Tim Geithner says that if the debt ceiling is not raised by August 2, the US will be unable to pay its bills.

What happens if the debt ceiling isn’t raised?

If the debt limit is not increased by Secretary Geithner’s deadline of August 2, the US will enter default.  Right now, spending exceeds tax revenue, so the government must borrow (by selling bonds) to cover the difference.  When the debt ceiling is reached, the government will not be able to borrow anymore, and the US will be unable to fulfill its obligations.  Social Security checks may not be issued or government offices may be shut down.  Once the debt ceiling is increased, the government will resume paying its bill and almost certainly pay its obligations retroactively.  The scary part, though, is that no one really knows what will happen – the debt ceiling has never been reached in this country, and most other countries don’t even have such a thing.

What will the consequences be?

Again, no one knows exactly what will happen, but it seems unavoidable that interest rates will jump.  Moody’s, a leading credit rating firm, has threatened that it will downgrade the perfect AAA rating for American government bonds if a compromise on the debt ceiling isn’t reached imminently.  A downgrade means that Moody’s no longer thinks of U.S. debt as risk-free, and that there is a chance that bond-holders will lose their investment.  As a result, investors will demand a higher interest rate on government bonds to make up for the increase in perceived risk.

How does this affect me?

You might be wondering how exactly you’ll be affected by this whole mess.  Well, even if you aren’t a government employee and don’t receive Social Security, you could still see some effects.  The most important is the increase in interest rates; the interest rate that you get on a home loan, for instance, is directly affected by the interest rate on government bonds, so if August 2 comes around without a debt ceiling increase and interest rates go up, people will be less likely to buy things that require financing, like homes, because it will just be too expensive.  The housing market has yet to recover from the beating it took in the Great Recession, so this is not good news.  As CNN’s Jack Cafferty notes here, the homeownership rate in the US has fallen to just 66.4%, its lowest level since 1998.  If interest rates rise, fewer people will be able to afford this important part of the American Dream.

Is there a silver lining?

Yes.  As a result of declining home-ownership, demand for rental properties will increase.  And the multifamily industry has seen impressively growth recently, with impressive new projects breaking ground every day.  It may become more expensive for multifamily housing owners to get financing for new projects, but companies with good credit should be able to escape the worst of it.

So what do you think? Will Congress reach a compromise to increase the debt ceiling before the August 2 deadline? And how do you think it will affect you?  Let us know here or on our Facebook page! Stay up to date on this issue and other similar ones as part of our ‘Rent Increase WATCH Series’.

The issue is raised because in the case of Guggenheim v. City of Goleta, a 2009 case, a lower court ruled against the property owner. Because it’s a rent control case, Guggenheim v. City of Goleta could set precedent allowing cities throughout California to revisit the rent control question for all rental housing.

CAA’s legal fund filed an amicus brief asking the U.S. Supreme Court to review the lower court’s ruling (filing an amicus brief is a way a group with strong interest in the subject matter of the case to raise the court’s awareness of a particular aspect of the case; the court, however, isn’t required to consider the brief).  In the brief, CAA argues that rent control has been shown to decrease the quality and quantity of available affordable housing, also arguing that rent control has been linked to “high-priced shadow markets” and has disproportionately benefited high-income renters “who hoard price-controlled units.” They say rent control laws—originally created to protect renters from landlords making huge profits—create artificial restraints that are detrimental because they prohibit landlords from charging what prices the market will allow. In turn, they argue, this means landlords don’t have the extra cash on hand that they might otherwise invest in new housing or improving existing housing.

From the opposite perspective in the rent control debate, rent control is a necessary form of protection. Without rent control—also known as rent stabilization—tenant rights defenders say unscrupulous landlords could threaten tenants with rent raises if the tenants complained about defects in the property.

Some states, such as New York, hold that rent control is a necessity, needed to sustain a supply of affordable housing and keep rent raises from driving out workers or vulnerable people; it’s true that without rent control, high or frequent rent increases can cause families have to move more often, causing negative impacts on schools, youth groups and community organizations.

Since the case at hand is in California, it may be useful to know that with rent stabilization, landlords are free to set vacant units at market prices; it’s just that once the unit is rented, all increases that follow are capped at a set percentage. San Francisco is one large city with rent stabilization.

It’s certain we’ll be hearing more about this issue as the Supreme Court hears the appeal on the case. But I’m not sure how much of an impact changes will have, given that these days, availability of mortgages seems to be the constraining factor on development of new apartment projects; MultiHousing News Online reported that a representative of the National Multi Housing Council and the National Apartment Association testified before a key subcommittee of the House Financial Services Committee that the Department of Housing and Urban Development is failing to keep pace with the volume of multifamily mortgage applications.

The NFHA has been very active on the issue; earlier this summer, along with the Fair Housing Council of Central California, they sued American Classifieds, LLC for publishing housing ads that discriminate against families with children. Seemingly, they won’t be able to go after ILSs until after the loophole in the aforementioned Communications Decency Act, which does not include online publications, is closed.
The NFHA press release cited these as examples of Internet housing advertisements discriminating against families with children and with other illegal preferences:

• 2BR: “Mature couple or single with no children” Brooklyn, NY
• 3BR: Duplex: “Christian atmosphere” Evansville, IN
• 2BR: “PERFECT FOR 2 ADULTS…..seeking a maximum of 2 tenants” New Haven, CT
• 2BR: “Couples preferred” Chicago, IL

A few years ago, the Chicago Lawyers’ Committee for Civil Rights Under the Law Inc. sued Craigslist under the Fair Housing Act for the user generated discriminatory ads on that site. A judge granted Craigslist’s motion for judgment in that case, claiming protection under the very legal loophole the NFHA now wants to rectify.
Although Craigslist won the suit and continued with their hands-off policy, leaving the flagging of inappropriate content to users, ILSs embrace the spirit of the Fair Housing and Communications Decency Act of 1996.

MyNewPlace, for example, has a system in place that monitors the descriptions that clients submit for the property descriptions. We have a program that identifies problematic phrases and words, and although most of the time the alerts are false-positive, this keeps our site in line with the letter and objectives of the Fair Housing Act.

According to the article, U.S. government officials are considering a plan to pay the mortgages on houses that would otherwise be foreclosed on and then rent those houses back to the former owners at a price they would be able to afford. The funding for the program would come from an unused portion of a $50 billion housing aid program.

This new idea comes as a response to the slow progress that February’s housing rescue plan has made; apparently, constricting red tape and rising interest rates have hampered the program which was to refinance mortgages and lower payments for millions of at risk homeowners.

This could have a major effect on the apartment rental industry, as the program amounts to a government subsidy of the rental shadow market. Just today, Multi Housing News reported on a presentation entitled “U.S. Apartment Markets Outlook” by Greg Willet, VP of Research at YieldStar, which gave a comprehensive rundown of expected supply and demand for the upcoming quarters.

One observation that Mr. Willet shared with the RealPage Conference attendees was that in 2008, the shadow market absorbed a lot of renters, as homeowners attempted to recoup some of their losses by renting out their homes. This year, more and more of those rental units are being foreclosed on and driving renters back into the apartment market.

If the housing rescue plan goes through, Mr. Willet’s predictions that “[rent] revenues will come down a little bit more, maybe somewhere around 2 percent…and real recovery will take place between 2011 and 2013,” would certainly seem accurate.

Richmond, CA, a city of about 100,000 people located in San Francisco’s East Bay, has passed a local ordinance that will ban smoking in all apartment buildings. The new law comes on the heels of another smoking ordinance passed earlier this year that prohibits smoking in public places such as parks, parades and farmer’s markets.

Richmond’s new ordinance, which prohibits smoking in all multi-unit housing facilities, is one of the strictest anti-smoking laws in the nation. Only two other towns, Belmont and Calabasas, both in California, have similiar types of restrictions that extend to residences. Dublin, also located in the East Bay, passed a less restrictive ban, which requires that half the units in apartment buildings with more than 16 units must be smoke-free.

Councilman Tom Butts, seemed to acknowledge that the Richmond City Council reviewed a variety of proposal’s before passing the outright ban, stating “This idea that somehow you could bifurcate buildings and make portions of it smoking, portions of it nonsmoking, it just doesn’t work.” Indeed, we have heard how smoke travels between rental units through the smallest of channels, such as electrical sockets.

We have reported on local and state government’s efforts to pass laws that protect renters from secondhand smoke in apartments for the past year or so. We have seen lawsuits, restraining orders, redundant state legislation, outright bans and owners devising policies suit their renters.

We tend to think that apartment owners should have the right to make the rules for their apartments, since they will act in a way that will please the largest amount of their tenants. If a tenant does not like a certain policy, then they can choose to move into a different apartment. If the owner enacts sweeping changes, such as a smoking ban, then a tenant should have an opportunity to break their lease without penalty.

What do you think? Does the government have a responsibility to ensure that it’s citizens are not exposed to dangerous elements in their apartments? Should an apartment owner be forced to enact certain policies? Apartments must remove asbestos, but you can’t exactly buy a pack of asbestos at the store.

Have you witnessed disputes amongs renters over secondhand smoke? Have you lived or worked in an apartment complex that adopted smoking policies?

San Francisco Mayor Gavin Newsom (left) and Supervisor Chris Daly (right)

Yesterday, Mayor Gavin Newsom of San Francisco announced that he plans to veto a set of renter protection laws authored by Supervisor Chris Daly and passed by the San Francisco Board of Supervisors last week. The Renters Economic Relief Package includes:

• Prohibiting rent increases that puts a tenant’s rent over 33 percent if the tenant is unemployed, has had his or her wages cut or is living on a fixed income.
• Makes the San Francisco Housing Code the final authority on how many roommates may occupy a given rental property based on square footage and number of bedrooms, allowing renters to add roommates to help pay the rent.
• Limit the amount of “banked” annual rent increases that a landlord may impose to 8 percent.

These measures were offered by Supervisor Chris Daly as a way to help renters who have lost their jobs, or have had their benefits or wages cut keep their apartment homes. Mayor Newsom, however, promised to veto the measures, prompting a rally on the Capitol Steps yesterday at noon.

San Francisco has an unusual rental market. The city itself has a high rental population (about 2/3) and consistent low vacancy rates. Demand is kept high by a steady stream of new residents from around the nation who move to a city that is located at the tip of a peninsula that is only 7×7 miles. However, San Francisco also has a long history of being a very tenant-friendly city, with very strict rent-control measures and a tenant friendly rent board. Without rent control and a prominent tenant’s union, the unregulated San Francisco rental market would be very different; Rents would be higher, apartments would be nicer and neighborhoods would be much more ‘economically defined.’

The Renters Economic Relief Package passed by the Board of Supervisors was watered down from its original version, which extended the 33 percent of income cap to all renters. 30 percent of income is about the recommended percentage of income that people should spend on housing. The federal Section 8 housing voucher program works on that supposition. Low income families pay 30 percent of their income toward rent and the federal government pays the difference between that and the market rate. The proposed measure would place that cost of that difference on the backs of rental property owners and landlords instead of on the entire taxpayer base (as with the Section 8 Housing Voucher Program).

The second measure allows renters to invite as many roommates as the San Francisco Housing Code will allow without allowing the landlord to raise rent. If this were enacted, landlords would lose the ability to regulate the number of tenants in their own apartments.

The third measure prohibits rental property owners from saving up their annual rent increase allowances and imposing them all in one year. This is designed to prevent landlords who have not raised rents over the past ten years to all of a sudden jack up rents on tenants (this year especially). However, rent control, which was enacted in 1979 to combat high inflation spurred especially high by the Bay area’s property prices, is only about 2 percent a year and therefore would require that landlord had saved up their allowable percentage increases for many years.

All perspectives considered, the measures protect the most vulnerable renters, but does so at the expense of rental property owners and landlords, but in doing so, may be more of a band aid solution.

What do you think? Is the proposed Rental Economic Relief Package necessary? Is it fair?

Today the House will vote on HR 2454, (at press time, House Minority Leader John Boehner was filibustering the House by reading selections from a 300 page amendment, you can watch live here) the American Energy and Security Act; this bill has many implications and has been supported by liberals as a necessary measure and derided as “Cap and Tax” by conservatives and. It is the centerpiece of the Democratic environmental policy and its effects, (if passed, which looks likely) are predicted to be quite far reaching.

The goal of this omnibus energy bill is to move the entire country to more sustainable, more environmentally friendly methods of producing and consuming energy. The official statement from the Chairman of the Committee on Energy and Commerce and main co-sponsor Representative Henry Waxman (D-CA) emphasized the benefits of HR 2454, stating, “the legislation will create millions of new clean energy jobs, save consumers hundreds of billions of dollars in energy costs, promote America’s energy independence and security, and cut global warming pollution.”

The main provisions are include requiring utilities to generate an increasing percentage of their power from renewable sources, establishing a cap and trade system for greenhouse gas emissions for businesses, establishing a Carbon Storage Research Corporation, revamping current power grid and transmission guidelines to update infrastructure and finally–and this part majorly affects the apartment industry–establishing new energy conservation standards for buildings.

It is indeed interesting to note that a majority of funds are allocated for “Consumer Protection,” which means that consumers will be provided with federal money to defray any spike in energy costs that the bill causes.

According to the analysis from the NMHC, the building code mandates that the Secretary of Energy establish a National Energy Efficiency Building Code that is 30 percent more efficient that the 2004 version of AHSRAE Standard 90.1, and by 2014 the national code is required to be 50 percent stricter than current standards (this would apply only to buildings built after the pending legislation becomes law).

The NMHC has been alerting legislators to the fact that some regions of the country, these new codes would be impossible to meet, therefore, a strict federal one size fits all policy is not a good solution. Locations with extreme temperature changes such as apartments in Minneapolis, would have a much more difficult time meeting standards than would apartments in Los Angeles.

According to Multi Housing News Online, Colorado Representative Ed Perlmutter has reintroduced legislation (H.R. 2336) that would bring energy efficiency to the single and multifamily housing markets. Mr. Perlmutter’s district, located on the eastern side of the Rocky Mountains, gets about 300 days of sun every year(and a whole lot of wind), so Denver apartments are sure to be prime candidates for renewable energy sources.

From the Congressman’s floor statement:

“The GREEN Act would take steps toward addressing energy consumption within housing by establishing minimum energy efficiency standards for HUD and providing incentives to the private sector to move our housing and building stock to energy efficient standards.”

HUD announces Funding for Energy Efficient Projects

Additionally, it sounds as though HUD has already responded to demands for greater energy-efficiency. HUD received 4 billion in stimulus money; $2.95 billion was allocated by formula (according to state and city populations and needs) and $995 million will be distributed by a competitive grant process, whereby public housing authorities will compete for grants. (10 million goes to HUD for administrative costs, a little something for the effort)

The revised Notice of Funding Availability (NOFA), which is HUD’s guidelines on how to apply for grants and summary of those projects that are eligible, includes a 4th section, for the “creation of Energy Efficient, Green Communities.” (page 12 of NOFA) This will allow Public Housing Authorities to use stimulus money to make low income apartments and other public housing more energy efficient.

Even if Rep. Perlmutter’s perseverance does not yield higher standards for PHA’s housing (like last year’s attempt) at least the government is pushing a green apartments agenda.