Investor owners reshape rental housing -- rhino!UP May 2, 2021
The homeownership market is booming...or is it? While media reports tout rising prices for home sales and new "hot" markets in Middle America, neighborhoods in Cleveland and around the state are seeing "We Buy Houses" signs seems like on every telephone pole. The reality is that Ohio has two housing markets: investors and owners.
While homebuyers are bidding up the value of premium real estate in suburbs, investors are scooping up "bargain" homes in undervalued urban neighborhoods. These investors have two routes to wealth: "flip" these undervalued homes to buyers who are not bankable using rent-to-own scams, or to sell the homes to out of town investors.
To combat the problem of investor buyers scooping up affordable single family houses, California has enacted protections for tenants seeking to become homeowners. California's SB 1079 gives existing tenants of foreclosed properties the opportunity to match any winning bids at foreclosure auctions. The new law also provides a "right to match" to nonprofits, cooperatives, affordable housing developers, and community land trusts.
But as coastal rental markets become out of reach even for investors, a newly released "housing index" claims to identify emerging housing markets in unexpected places. The Wall Street Journal-Realtor.com® index claims to compile variety of factors to determine "hot" buying markets outside of the traditional Coastal Markets. Based on this new index, the Akron Beacon Journal proclaims: Akron area is No. 12 emerging housing market in nation in debut of ranking system.
Turns out that 3 other Ohio cities including Columbus (17), Toledo (25), and Canton-Massillon (46) are in the top 50. Hotbeds of home buying? Maybe, but a more detailed analysis suggests that the "buyers" in these emerging markets may really "investors." An interesting characteristic of the index is that "Top Emerging Markets Attract Home Shoppers from Other Markets." This could be a statistical anomaly since the data was gathered from Realtors. Does it mean that the overall population is growing as families move to Akron? Not likely. Or it could be a reflection of inquiries by out of town investors. Time will tell.
A different indicator of the two level housing market comes from the Joint Center for Housing Studies. YOUNG FAMILIES AND THE GROWING NUMBER OF NEW SINGLE-FAMILY RENTALS looks at evidence that young families with children can't compete for first time starter homes. Instead they are turning to newly constructed Single Family Rental (SFR) properties. While newly built SFR properties are a small percentage of all new rental properties, they seem to offer attractive options for young families with modest incomes. According to the Ohio Board of Realtors the percentage of first time homebuyers in 2020 was at the lowest level since 1987.
Allan Sloan and Cezary Podkul in the Washington Post argue that the Federal Reserve isn't helping to level the playing field in housing choice. Their study reveals how the The Fed's low interest rate policy of the past 12 years has rewarded investors at the expense of working people. Low interest rates spark big gains on Wall Street and individual homeownership is no longer the wealth generator it was for previous generations as families now compete with investors.
Two factors may help reshape this growing bifurcation between family buyers and investor owners.
President Biden's American Jobs Plan and American Family Plan will, if enacted, provide financial support to low and moderate income households and while, at the same time, raising taxes on upper income investors.
If enacted, these bills will likely trigger an uptick in inflation as families spend on immediate needs causing prices to rise. In reaction, the Fed will raise interest rates to tamp down home prices and Wall Street speculation.
Footnotes
05/02/21. The Hill. Is the US headed toward a new housing bubble? "Federal Reserve Chairman Jerome Powell told reporters Wednesday that while the sharp rise in housing prices is not an “unalloyed good,” the Fed hasn’t picked up signs of financial instability or growing risks. Powell, however, voiced concerns with how many potential first-time buyers could miss their chance to make a crucial investment after a crisis that drastically inflated wealth inequality."
May 19, 2021. Press Release. Investor Home Purchases Rise for First Time in a Year as U.S. Economy Bounces Back. "Investors have the highest market share in mid-sized cities including Miami, Charlotte, Las Vegas and Phoenix--places that have been heating up because they're relatively affordable."
Jun 11, 2021. Vox. Wall Street isn’t to blame for the chaotic housing market. "The role of institutional investors is still being studied, but the popularity of the narrative strikes at something dangerous: People want a convenient boogeyman and when they get it, they often ignore the structural problems that are harder to combat. Housing undersupply is the result of decades of locals opposing new home building. It’s not something that can be blamed on Wall Street greed and the nefarious tinkering of a private equity firm. And that’s a much harder truth to stomach. The boogeyman isn’t who you want it to be.' RHINO is not convinced that private investor speculation is not the culprit. That said, the conclusion is correct that it is not a conspiracy. Just too many easy dollars (owing to zero interest rates) chasing too few housing units.
JUNE 19, 2021. Slate. Investment Firms Aren’t Buying All the Houses. But They Are Buying the Most Important Ones.. "The median price of an American house has increased by 28 percent over the last two years, as pandemic-driven demand and long-term demographic changes send buyers into crazed bidding wars. Might the fact that corporate investors snapped up 15 percent of U.S. homes for sale in the first quarter of this year have something to do with it? The Wall Street Journal reported in April that an investment firm won a bidding war to purchase an entire neighborhood worth of single-family homes in Conroe, Texas—part of a cycle of stories drumming up panic over Wall Street’s increasing stake in residential real estate. Then came the backlash, as cool-headed analysts reassured us that big investors like BlackRock remain insignificant players in the housing market compared with regular old American families."
Cincinnati rejects affordable housing funding -- rhino!UP May 9, 2021
The defeat of Cincinnati's Affordable Housing initiative (Issue 3) last Tuesday is a landmark for citizen's action around rental housing needs. For the first time since 1990 (when there was a state wide vote to amend the Ohio Constitution to make housing a "public purpose") has affordable housing has been put to a vote of the people. However, unlike the successful 1990 campaign, Cincinnati's Affordable Housing Advocates faced opposition from every sector of the civic establishment in their effort to compel city officials to appropriate $500,000 annually for the support of affordable housing development.
Like other Ohio cities, Cincinnati has relied on a pot of money derived from secondary sources like Federal grants and repayments of loans from earlier development projects. What advocates sought was a fixed amount of General Revenue committed to affordable housing development.
Lessons learned?
Citizens can't fight all of City Hall and the business and civic establishment at once. Advocates had few allies from Cincinnati officials. In particular, powerful public sector unions saw Issue 3 as a direct threat to the livelihoods of their members.
A dedicated revenue source is critical. A revenue source should be "related" to housing and not currently being used by any other agency. For example, the Ohio Housing Trust Fund, created in 1991, identified an increase in the fee charged by County Recorders as the revenue stream for the Housing Trust Fund. In Columbus, the Housing Trust Fund is partially supported by the hotel-motel tax and the real estate transfer tax. In the wake of the defeat of Issue 3, Council Member Chris Seelbach plans to introduce a charter amendment to raise the earnings tax by .01% as a dedicated source of funding for affordable housing. Maybe this is a lesson learned?
Electoral timing makes a difference. Issue 3 was presented in a municipal primary election. In Ohio, these are the lowest turnout elections. They feature (mostly unknown) mayoral, council, and judicial candidates in a preliminary battle to see who gets to run again in November. Municipal tax levies often pick municipal primaries to avoid anti-tax opposition. The average voter bypasses municipal primaries unless the voter is regularly involved with local government.
Message matters. Persuading homeless or rent burdened citizens who need affordable housing come out to vote money into the hands of private developers in order to create affordable housing at sometime in the future is a complex message that doesn't fit on a bumper sticker or button. Messaging is an art form.
Right wing opposition has been mobilized. One of the most interesting developments in the campaign against Issue 3 was the emergence of right wing opposition which conflated affordable housing with defunding the police. Despite the reasoned efforts of the Affordable Housing Advocates to disconnect the housing advocates from the defund the police advocates, the linkages once made seemed inescapable. It is important to know that dark money funders are increasingly drilling into civic electoral issues with false info.
All that said, the Cincinnati initiative has succeeded at putting affordable housing on the public agenda. This fall, each candidate for Council and Mayor will be asked to take a position on how to address the affordable housing needs of Cincinnatians. Furthermore, a core of a "movement" has been battle tested. What may be missing is a balance of advocates, activists, organizers, and politicians in a campaign style organization. Advocates create policy. Activists provide visible leadership: the face of a campaign. Politicians know how to knock doors, push buttons (literal and figurative) and raise money. Organizers can manage the process to coordinate the moving parts.
Footnote to last week's issue on Cincinnati Issue 3
About that turnout issue? Fox19.com reports "Our media partners at the Enquirer report the second-largest turnout for a mayoral primary since 2001 despite the rain. Some 15.6 percent of registered voters in the city voted on Tuesday. The record was set in 2005, according to the Enquirer, when 20.7 percent of the city turned out. Pureval, Mann to face off in mayor’s race; Issue 3 fails. Fifteen percent turn out doesn't bode well for passage of a populist issue. Advocates need to plan to turn out their base and pick up some voters who turn out for other issues and win them over. PS: You think Cincinnati was bad. https://www.vindy.com/news/local-news/2021/05/election-officials-turnout-to-grow-this-fall/
Mowing is more complex than you thought. rhino!UP for May 16, 2021.
A week ago, it was Mother's Day snow.
And now it's all grass that someone must mow.
Cool wet springs and the grasses they bring
Is a tenants' rights issue, you know.
The Ohio Landlord Tenant Law (OLLTL) section 5321.04 (A) (3) holds a landlord responsible to "Keep all common areas of the premises in a safe and sanitary condition." Therefore yard maintenance should be a landlord's duty, unless the landlord and tenant agree that the yard is under the exclusive control of the tenant. That agreement could be in the rental agreement or lease.
Example 1: At a single family house, the yard is probably not a common area, unless the landlord maintains the right to enter without notice. Tenant becomes responsible for yard maintenance, unless the landlord takes on that duty. Tenant may make modifications to the yard, but will be obliged to return the property to its original condition when moving out.
Example 2: In a two family dwelling, rental agreements could define front or back yards to the exclusive control of the downstairs tenant and upstairs tenants (or vice versa). Tenants are responsible for their respective yards.
Example 3: At any property, landlord may create a rental agreement or contract with the tenant to perform maintenance of a common area yard in exchange for money or a rent reduction.
Agreements like these don't usually get the landlord off the hook under city property maintenance codes which typically require property owners to keep their properties mowed and free of debris. After all, local inspectors don't know about rental or other agreements between landlords and tenants. The landlord gets the citation for an unkempt lawn, unless the landlord can show that the tenant has exclusive control of the premises. In Cleveland the standard for a lawn citation in 8" or more...or noxious weeds.
So the answer to the question "who mows" may open the door for landlords and tenants to clarify the duty before issues arise.
1. Prospective tenants should ask the landlord what plans are in place for yard maintenance. Some landlords will have existing yard maintenance agreements. If tenant is concerned about the use of chemical weed control, for example, it might be to the tenant's benefit to take over yard maintenance or contract with an organic lawn care company.
2. Read the lease. The landlord may have already addressed this issue in the written rental agreement.
3. If lawn duties are still unclear, make an agreement that is satisfactory to both parties. If renters want to install a garden or play area where there's a lawn, get that agreement in writing. Include what happens to the raised beds or swings after the rental agreement ends.
4. If you are discussing pets, make sure you include yard use issues like fencing, shelters, waste management, and pet noise.
If landlord fails to follow through on yard maintenance duties, the tenant may give a 30 days written notice to come into compliance. After 30 days, tenant *could* put rent into escrow if the tenant has reason to believe that the failure to maintain the lawn is a housing code violation. HINT: get a housing code determination before putting rent in escrow. If the shoddy maintenance is merely "cosmetic," many courts will not accept a rent escrow payment.
If, on the other hand, the landlord and tenant have a rental agreement that gives the tenant exclusive control of the yard, the landlord must give a 30 days notice of the tenant's failure to perform yard duties. If tenant fails to comply, then landlord can bring an eviction action.
Lead Safe Housing for Kids Act: is this the year? rhino!UP May 23, 2021
Two days ago, Senator Dick Durbin (D-Ill) announced that he will re-introduce the Lead Safe Housing for Kids Act (LSHKA). According to the Press Release, "Durbin’s Lead-Safe Housing for Kids Act would require the U.S. Department of Housing and Urban Development (HUD) to update its lead poisoning prevention measures to reflect modern science and ensure that families and children living in federally assisted housing are protected from the devastating consequences of lead poisoning by prohibiting the use of visual assessments for low-income housing constructed prior to 1978 (the year the federal government banned the use of lead-based paint in homes)...."
This could be the year when Congress takes on a real preventive strategy. Past Federal efforts have focused on making repairs after a child has been poisoned. 2021 will be the third time that LSHKA has been introduced in the Senate, but the first time that a Democratic majority in the Senate and House might be supportive. Although the Senate bill has bipartisan sponsors (including Ohio's Rob Portman), previous Senate leadership wasn't receptive to bringing the legislation forward. RHINO has also learned that Representative Donald McEachin (D-Va) will offer a slightly different version of LSHKA in the House of Representatives as soon as next week.
Ten days before the Durbin announcement, the Government Accountability Office (GAO) issued another in a series of reports calling on HUD to change the way that Federally funded programs identify lead hazards. This report "costs out" more stringent inspection requirements using scientific testing of paint and dust hazards, not just visual inspection, in the Housing Choice Voucher (HCV) program. GAO assessing to protect children before they are exposed to environmental lead. This is exactly what LSHKA aims to do in all Federally assisted housing including public housing, project-based Section 8, and HCV.
GAO is serious. But in 2019, the GAO sent a letter to then HUD Secretary Ben Carson reminding him that HUD needed to take action on inspection standards.
In a June 2018 report, we made two recommendations that call for the Director of HUD’s Office of Lead Hazard Control and Healthy Homes and the Assistant Secretary for Public and Indian Housing to collaborate in enhancing compliance monitoring and enforcement. These offices need to develop plans to mitigate risk in the compliance monitoring process and develop procedures for addressing public housing agency (PHA) noncompliance with lead paint regulations. To address another recommendation from our June 2018 report, HUD needs to complete an analysis to inform its decisions about requesting authority to amend the lead inspection standard for the Housing Choice Voucher program.
Don't feel bad if you missed Dr. Carson's photo op on this topic. There never was one.
What does LSHKA mean for Ohioans living in Federally-assisted housing?
Around the state, public housing authorities and owners of project based section 8 housing will be required to test for lead hazards anytime a unit is occupied by a child under six years of age. This will fill a gap in Cleveland where the city's newly implemented Lead Safe Certificate program doesn't cover public housing units.
Housing authorities will also be required to test for lead hazards as a part of their annual inspection of pre-1978 homes where families with a child under age 6 are using a Housing Choice Voucher. Under current inspection standards, a fresh coat of paint is good enough. Since the Biden administration is moving to greatly expand the number of HCV households through American Rescue and general appropriations, this health and safety provision could have a broad impact throughout the state.
With Senator Portman as a co-sponsor, Senator Brown as chairman of the Banking and Housing Committee, and Marcia Fudge as HUD Secretary, LSHKA could make it over the finish line this year.