One Big Thing
There is a popular narrative that has been around forever but has received even more attention since the pandemic began: that of the zero sum game between wealthy landlords and less well-off tenants. The problem with this narrative is that it is largely untrue. About half of the 43 million rental units in the US are owned by small businesses. If those small businesses fail, large Wall Street investors stand ready to pick up the pieces and consolidate assets in the rental market, which could be a negative development for a market that already has major affordability issues. From Bloomberg (emphasis mine):
Small investors own much of the naturally occurring affordable housing in the U.S. If they’re forced to sell or abandon properties, more of the market might wind up in the hands of Wall Street firms, some of which have built up large portfolios of rental properties over the last decade or so. New owners with deeper pockets might opt to reposition low-income units to target wealthier occupants.
“Landlords are not a popular class of business people, for valid reasons and not,” Barry Zigas (senior fellow at the Consumer Federation of America) says. “But that obscures what’s now the very symbiotic relationship of renters and owners.”
It makes sense that there would be a large amount of animosity between landlords and tenants at a time when both are experiencing a high level of economic hardship. However, once-fringe ideas like a national rent strike that are being seized on by opportunistic politicians will only make matters worse. If it comes to pass, this will likely have a negative impact on already-stretched affordability by consolidating more naturally-occurring affordable housing units under the ownership of large corporate landlords and reducing competition.
What I’m Reading
Yikes: LA County is now looking to keep its stay-at-home order in place for the next three months. If other urban areas follow suit, this summer and fall could be a very chaotic time in the economy.
Uniquely Exposed: Perhaps no place in America faces more post COVID fallout then Manhattan. From the NY Times:
Manhattan has the largest business district in the country, and its office towers have long been a symbol of the city’s global dominance. With hundreds of thousands of office workers, the commercial tenants have given rise to a vast ecosystem, from public transit to restaurants to shops. They have also funneled huge amounts of taxes into state and city coffers.
But now, as the pandemic eases its grip, companies are considering not just how to safely bring back employees, but whether all of them need to come back at all. They were forced by the crisis to figure out how to function productively with workers operating from home — and realized unexpectedly that it was not all bad.
If that’s the case, they are now wondering whether it’s worth continuing to spend as much money on Manhattan’s exorbitant commercial rents. They are also mindful that public health considerations might make the packed workplaces of the recent past less viable.
Lagging Indicator: Even in a run-of-the-mill recession, it typically takes two or more years for employment to recover.
Time to Walk? With tourism imploding and lenders wary, some hotel developers are starting to consider whether it is time to send their construction lenders the keys to partially finished projects.
Chart of the Day
The historical correlation between unemployment rate and mortgage delinquency is very high. So far, enhanced unemployment and forbearance has held delinquencies down but this cant’ last forever.
Source: Oxford Economics
Gratitude: A woman was arrested for battering her husband with a bouquet of Mother’s Day flowers because Florida.
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