Apartment demand is so low it’s falling into the negative category, due the huge swing towards home-ownership accompanying falling interest rates. Apartment vacancy rates are climbing. Yet, apartment rents have been climbing as well. What does this really mean?
It means that we do not have a “market” when it comes to apartment rentals. Capitalistic markets work efficiently via a parallel movement between supply and demand. When demand is sluggish, prices fall. When demand is high, prices rise. Since this is clearly not the case with apartment rental, it means apartment building “owners” (real estate investment trusts; REITs) must be making hefty profits even with low occupancy. It means REITs do not attempt to lower rental rates to meet the market. It means we don’t have a market responding to real-life demand and supply of human needs. It means we don’t even have capitalism. We have apartment REITs focused merely upon their own bottom line. What does this have in store for fixed or low-income persons, and the economy?
It suggests this economy needs some means of assuring that it does not quicken its spiral downwards partially based upon the mere greed among REIT investors. It means that, perhaps, we need to raise taxes on apartment building REITs while simultaneously implementing some version of rent control. Otherwise, those taxes will just be passed along in the form of higher rents until REITs give new meaning to what the “market will bear.”
Advocating rent control has historically tended to ignore fairly fundamental laws of economics. However, these days it is actually the “owners” of rental property that treat it as if it were a “public utility” which they are entitled to exploit at the expense of taxpayers, communities, and their residents. It is also evident that the sacred economic incentives of a capitalist system are in need of reform as apartment developers just continue to build blindly, due to low interest rates. REITs and the stock market on which REIT shares are traded, have become a form of socialism for an elite. Where is competitive capitalism at work here? Will it be good news for true capitalism should REITs be forced to sell off rental properties for dimes on the dollar?
How many apartment REITs give consideration to long-term, responsible residents? How many of these apartment investment trusts upgrade the property for responsible residents on a regular basis out of profits? Instead, the current incentive is to pass the building (and its problems) along to new owners who are often looking for fresh tax cuts. New “owners” may not make needed improvements. If the new REIT does choose to make improvements, will it willingly adjust its rates in line with low rental demand? Prior to making a major return on the investment, it most certainly will not.
Individual owners of apartment buildings generally have greater incentives to keep property in good repair than does a REIT. The current mode of REIT “ownership” is, of course, a very efficient way to encourage deterioration in the overall housing supply. There’s no difference to residents if the property is owned by government or by REIT investors—large or small. If it is our intent however, to favor real estate developers in order to exploit our environment, our communities, our elderly, and other persons at risk, REITs are working like a charm.
Looking at the long term, it’s not a pretty picture. Can a real estate investment trust ever be capable of caring about or analyzing the human toll it takes along with its profits and losses? By law, at least ninety percent of a REIT’s earnings must be paid out every year in the form of dividends to investors. Even when the management of a REIT holds a significant interest in the property, they are working for themselves and investors, not with the human community that resides within; not with the community that potentially works together to maintain their community, security, and conviviality within the building’s estate.
While renters have been known to work together to improve a loss of personal or community safety in these buildings (thereby also benefiting owners), it seems that when real estate investment trusts experience losses, their only solution is to raise rents upon the current residents. This constitutes a market for REITs, but it has nothing to do with the real demand and supply of an ongoing human need for shelter. So, does this really constitute a “market?” Only if your definition of a market consists merely of transactions that serve absolutely no other purpose than to serve other markets, with neither “market” serving any real human needs, efficiently or inefficiently. Is it even “capitalism”? We must find a better way to include small investor participation, and improve access to real markets.
In the meantime, reports from traditional media sources indicate inflation is manageable. Apparently, this mindset of manageable inflation applies largely to investor profits, while the price of eggs, apartment rents, and energy still take their toll upon those with fixed and low incomes, and all those otherwise at risk.
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