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Oct 12, 2023

See new posts Conversation Jay Parsons @jayparsons Here's, for me, the biggest surprise turn of the U.S. apartment sector in 2023: Class B apartments have been more impacted by supply than even Class A. In high-supply submarkets, Class B rents are down more than 2x Class A. Yet in no-supply submarkets, they're equals. I was wrong on this one. I thought (and posted here) that Class B would be somewhat insulated from supply given the ~27% discount relative to new construction rents. As I pointed out back then: I believed in the long-term "filtering" effect. I just didn't think it would happen this fast. And it's important to note this is ONLY happening in areas with lots and lots of supply. Why is that? Been digging into this a lot in recent weeks, and here's what I think is happening: 1) In high-supplied submarkets, we've seen rapid rent compression between new construction and Class B thanks to concessions and rent cuts... down to a median of 11%. That's a more manageable number to spur move-ups from mid- and upper-income Class B renters into new lease-ups. (In low-supplied areas, the premium is more than 2x that.) 2) The median rent-to-income ratio in Class B is 23%. So for renters below the median, there's likely some pent-up demand for newer and nicer apartments... yet perhaps there wasn't enough new product previously, or those renters didn't see value there until now, with rent spreads compressing. (Remember: Renter incomes still must qualify at the non-concessed rent.) 3) The impact of move-ups is clear from looking at occupancy, and that's likely what is triggering Class B rent cuts. In those high-supplied submarkets, Class B occupancy is just 93.6%. Compare that to no-supply submarkets, where Class B occupancy tops the U.S. average at nearly 95.0%. Implications? For RENTERS, it's another sign the balance of power has shifted back to renters. For OPERATORS, it's an unexpected twist that makes for a more challenging landscape. And for POLICYMAKERS, it's a powerful sign that if you truly care about housing affordability and access, it starts by legalizing and approving A LOT more housing.

This is just the start of a very long post, but the upshot is clear from the graph: even if apartments that are getting built are 'luxury' this impacts the entire market. Good news: Newsom signed all of YIMBY's priority bills this year.

Nilo Cobau @nilocobau Just learned today that’s it’s illegal to smoke weed in California unless you’re inside a single family home, which is the most California thing I’ve ever heard. — (src)

Strictly speaking you can only smoke weed in a home that you own, so theoretically you could smoke in your condo, but the condo board would have probably prohibited it.

mattyglesias 5h Euros taking the L again humanprogress.org/datas… — (src)

I don't have hard data for this, but I strongly suspect the difference here is GMOs.

Longer Reads

• Explanation of how the 'race to the bottom' theory that globalization would make life worse for everyone turned out to be exactly wrong. Happily, folks have actually admitted they were wrong about this. (src)
• Very surprisingly to me, giving kids condoms in school actually lead to higher teen pregnancy rates. (src)

Flotsam and Jetsam

– Actor photos on Wikipedia are mostly from Comic Con, because there's one guy who goes to Comic Con just to take creative commons licensed photos of all the actors there. (src)
– Israel, Iran and the US are all denying the WSJ story that claimed Iran was involved with the attacks. (src)
– Lead architect of La Sagrada Familia, Etsuro Sotoo, was born in Japan, but was so moved by it that he moved to span 40 years ago and it looks like it'll be finished by 2026 (src)
– Detroit is going to implement an LVT, but they should probably spend more on their assessor's office as part of that. (src)
– Renewables are popular, but just a few people disliking something is all it takes to block a project with NEPA (src)

– More on California's home insurance market having problems (src)
– US is trying to organize a way for civilians to exit Gaza into Egypt, which borders Gaza and blockades their border. Here's a report from NBC News. (src)
– NIMBY and Anti-Immigration paired in the UK, with the thinking "We have a housing policy that unnecessarily impoverishes us all so therefore we must have an immigration policy that unnecessarily impoverishes us all to compensate" (src)
– Apparently a bunch of Israeli commandos were sent in as the attack started and were all killed. They were unable to deploy anyone else for fully 12 hours. (src)
– A kid who couldn't get into university has proven he has talent by getting hired at Google out of High School (src)

Tugboat for Today

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