Affordable Housing Institute : US

 

“I said, ‘I lost it in the moon.’”

 

As the great Yogi Berra might have said, nobody can afford to rent homes any more, they’re all being vacated by foreclosure.  At least that’s the apparently oxymoronic conclusion implied by these two contemporaneous stories [both November 10 — Ed.] from Miami.  First the rental bad news, from The Miami Herald:

 

Many renters find nowhere to go

Low-income renters in Miami face one of the most burdensome markets in the country, with spiraling housing costs and stagnant wages pricing them out of their homes at a ”worrisome” pace, concludes a study released Friday by Florida International University.

 

I’m worried about the children

 

Once they are priced out of gentrifying Miami neighborhoods, low-income renters have ”virtually nowhere to go” to find more affordable housing because there is a dire lack of lower-cost apartments throughout Miami-Dade and Broward counties, the study says.

 

”We’ve known there is an affordability crisis, but what this study is now pointing to is displacement and replacement,” said Marco Feldman, a research associate at FIU’s Research Institute for Social and Economic Policy and the study’s author.

 

Second, the condo bad news, from the Florida Sun Sentinel:

 

Slow housing market spurs condo ‘conversion reversions’

With no buyers, market forced to change units back to rentals

 

Just a short time ago, investing in the condo-conversion craze seemed like a good bet.
Stephen Mahaffee became one of those new buyers. He had been renting a one-bedroom apartment at Cypress Club at Woodmont in Tamarac for about 10 years when he got word the building was being converted to condos.

So in January he made his move and paid $199,900 for a two-bedroom unit.  Less than a year later, he’s one of only 18 owners in the 164-unit complex that Bankers Holding Group reluctantly decided to turn back into a mostly rental property.

The emerging trend of going from rentals to condos and — when the units don’t sell — back to rentals again is what South Florida real estate experts are calling “conversion reversions.”

 

Throw out a condo conversion … and it comes back as a rental!

 

Since 2006, about 6,059 units that were once for sale in Broward and Palm Beach counties have been switched back to rentals, according to Jack McCabe, a Deerfield Beach real estate analyst.
“The condo-conversions sales market has absolutely fallen off the table,” said McCabe. “Prices have gotten so high that the vast majority of people they were geared toward can no longer afford them. We are just seeing the beginning of the reversion trend.”

 

Well, who’s right here?

 

“Well, who’s right here?”

 

What’s going on in this crazy mixed up market?

 

“It’s pretty clear that the problems of two little renters don’t amount to a hill of beans.”

 

I think it’s a matter of sorting through several colliding trends:

 

The snapshot effect.  Any given snapshot is distorting because every element of an ecosystem is constantly in flux.

 

”If low- and middle-income workers cannot find adequate, affordable housing in the city of Miami, businesses will face an employment crisis,” the study concludes.

Tony Villamil, chairman of the Beacon Council Economic Roundtable and CEO of the Washington Economic Group in Coral Gables, has said for the past two years that South Florida is at a critical juncture and bold moves are needed.

 

”There’s been a glimpse of political will,” he said. “Everyone is talking about the fact that we need to do something, but there has been very little movement.”

 

Political vaporware is a way station along the way to action by the government factory, and before political vaporware comes political posturing — otherwise known as ‘glimpses of political will.’

 

“In olden days a glimpse of political will

Was looked on as something shocking”

 

Capital markets and property markets.  Crunches in the financing of housing do not necessarily translate into equal and contemporaneous crunches in the operations of housing. 

 

Eric Castro, chief operating officer of the Bankers Holding Group, owner of Cypress Club since November 2005, said reverting to rentals became an economic necessity when the condos didn’t sell.

 

However, when the owner is in financial trouble, the property always suffers.  And financing pressure can and usually does have operating consequences.

 

“The absorption rate just fell off the cliff,” said Castro, referring to the number of renters who wanted to become homeowners. “The majority of units stayed vacant and the notes were coming due.”

Now monthly rentals are bringing in $995 for a one-bedroom condo and $1,350 for a two-bedroom townhouse.

Mahaffee, the former renter who is now an owner, is left with mixed feelings about the deal and whether he stands to lose money on his property.

Gaps in price points.  Income levels and occupancy costs are like multiple strata, each laid upon the other.  Just because there’s an excess of supply in the market’s top end doesn’t automatically translate into greater affordability at the low end — at least, not right away.

 

The Miami-Fort Lauderdale-Miami Beach metropolitan area leads the nation in the percentage of renters who pay more than 30 percent of their income for housing and those who pay more than 50 percent of their income for housing.

 

Both of these are commonly used affordability and unaffordability standards.  Obviously, there is a huge shortage of supply relative to demand.

 

Be careful or your market will fall in

 

Long and short-term horizons.  Demand and demography are long-term trends.  Pricing and resale of unsold condos are short-term trends.  With the added complexity of multiple pricing points, it should be no surprise that these waves are often out of synchronicity, and create both crunches and gaps.

 

The FIU report backed Perry’s argument.

 

Between 2000 and 2006, there were 20,634 fewer renters living in apartments in Miami costing $600 or less per month; a 39 percent decrease. At the same time, there were 9,000 more renters living in apartments costing $1,000 a month or more.

 

I presume those figures are inflation-adjusted.

 

”This crisis has been building for a number of years, and now we’re beginning to reach a really critical point in the city,” Feldman said.

 

Need housing soon

 

Shifting tenure does not automatically shift occupancy.  A renter who buys his condo conversion doesn’t move.  Similarly, in a condo reversion, those who might have moved out anticipating a sale can move back:

 

In Palm Beach County, at the 450-unit Mizner Court at Broken Sound Apartments in Boca Raton, last year’s plan to convert to condos never went through. Also, the 216 units at Aventine at Boynton Beach were converted back to rentals earlier this year.

“Sales have died and they are trying to rent them, keep the money coming in,” said McCabe, who claims he coined the term “conversion reversion.” They “started in South Florida and now we’re starting to see it around the country,” he said.

 

Economic nature abhors a vacancy; sooner or later, these condos will get filled.

 

Renting is becoming an increasingly attractive option for single-family homes that aren’t selling, said Richard W. Barkett, who heads the Realtor Association of Greater Fort Lauderdale.

“As a result of the slow sales, sellers that are caught in this type of marketplace are starting to place their properties in the rental market, so we have seen an increase in the number of single-family homes that are for rent at the same time they are available for sale,” he said.

 

Phase delays.  Markets move fast, but different parts of the market move at different speeds. 

 

Imagine multiple waves in multiple dimensions

 

Supply takes a long time to create, but once created, has an incredibly short time to get itself occupied (or sold, which is financial occupancy, because in capital terms apartments are occupied by money, not people).

 

Barkett said many factors are involved, such as sellers needing to move quickly because of job relocation, or because they already bought a second home and are saddled with two mortgages.

“If I don’t rent the house, I’m going to have to sell the house for a lot less than what we really need to because the house in Ocala is very expensive,” Ray Poccia said. “It has to be rented, it has to be. We need income from it.”

Even as markets are falling, efforts are underway to change local real estate taxes.

 

He points to the sputtering property tax reform effort.

 

‘One of the reasons that there are so few low-cost apartments is that during these boom years covered by this study, landlords’ tax bills have gone up dramatically because they get no relief from Save Our Homes,” he said. “These tax reforms they want us to vote for on Jan. 29 do nothing to fix this part of the problem.

 

Thus we have supply going up, prices coming down, and change in assessment. 

 

The fresh flood of rentals into the marketplace is good news for renters, said L. Keith White, a real estate economist for Reinhold P. Wolff Economic Research Inc. in Oakland Park. Rents have remained stable or increased only slightly, he said.

The blinkin’ awful cussedness of things in general.  Carter Dickson’s catchall phrase for the god-damnedest coincidences necessary to create his howdunits, it conveys something of the unexpectedness of life. 

 

Led by the grass-roots group, Power U, members of Take Back the Land, Miami Workers Center and Low Income Families Fighting Together all planned to walk 6.5 miles to Miami City Hall, where commissioners had been expected to vote on a condo development known as Crosswinds. The vote was postponed.

 

Has it occurred to any of these folks that converting vacant land into more supply cannot possibly hurt affordability at the lower end?  More supply is good. 

 

More supply … is good.

More supply is right.

More supply clarifies.

 

It would be better still if it had some affordable housing:

 

Some housing activists say the Crosswinds plan doesn’t include enough units for low-income families. They say that the $200,000-plus condos are priced well out of the reach of most people in the neighborhood, which is considered one of South Florida’s poorest.

”The last thing this city needs is more high-priced condos,” said Denise Perry of Power U. “What we need is affordable housing for its residents.”

 

Just wait a while, Ms. Perry; the prices will come tumbling back to earth.

 

Leroy Keating, an agent with ReMax Hometown in Weston, said one of his clients bought a house in Weston in December 2005 for $500,000 and can’t sell it for what he paid — let alone a profit. His mortgage, taxes and homeowner’s association fees were costing him $3,500 a month, so after six months on the market and “zero activity,” he’s renting it for $2,100.

“This too shall pass.”

 

“That’s where the market is,” Keating said. “They are forced to rent because they cannot sell. It’s extremely rough out there.”

 

In short, the credit market right now is in another Yogi Moment:

 

“If people don’t want to come out to the ballpark, nobody’s gonna stop ‘em.”

 

Ain’t markets amazing?

 

Watch for more amazing stories from the markets of the future!

 

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