With June already underway, we stand at an economic crossroads. A recession seems like a foregone conclusion. Rent growth has flattened and home values are off their recent highs. The Fed is looking for clear signals to determine future interest rate decisions but is getting anything but clarity in the data. Inflation is cooling but the job market continues to show strength. So, with such uncertainty everywhere, do they pause the rate hikes hoping that inflation will cooperate or do they continue to increase and risk a sharp downturn or possible turmoil in the banking sector? Only time will tell, but these decisions will have a sizable impact on the rental industry and real estate in general. In this month’s update, we will discuss the most recent economic reports, share a landlords perspective on the Renters Bill of Rights and offer some good news about local real estate.
Headlines
May Jobs Report - The May jobs report was an absolute shocker, revealing that 339,000 jobs were created against Wall Street estimates of only 195,000 jobs added. This marked the 14th consecutive month of job creation and the largest monthly increase since January. However, the unemployment rate rose to 3.7%, a seven-month high. Many Wall Street economists view the report positively, suggesting that the Federal Reserve is beginning to see the "better balance" that Chair Jerome Powell has often mentioned, while others were surprised by the robust job numbers, describing the report as the "strangest employment report for some time." The report's findings indicate that economic growth is stronger than most other monthly data suggest, but this leaves little clarity regarding the Fed’s next move.
Weekly Jobless Claims - The number of Americans filing new claims for unemployment benefits has surged to the highest level in over a year and a half. The increase, which saw weekly jobless claims rise by 28,000 to 261,000, was driven by rises in Ohio, Minnesota, and California. However, economists have urged caution in interpreting the data, attributing the volatility to a number of potential factors including the Memorial Day holiday and summer hiring fluctuations across different industries. Despite the increase, the four week moving average only rose 7,500 claims so some economists aren’t yet convinced the increase represents any weakness. Locally, Utah saw 100 fewer new filers than the previous week with only 1,282.
Consumer Price Index - The inflation rate, as measured by the Consumer Price Index (CPI), rose by 0.4% in April 2023 and was in line with analyst expectations. However, this translates to an annual increase of 4.9%, slightly less than the 5% estimate and the lowest annual pace since April 2021. The core CPI, which excludes volatile food and energy categories, also rose by 0.4% monthly and 5.5% from a year ago. Despite the Federal Reserve's efforts to control inflation, which included 10 consecutive interest rate increases since March 2022, inflation has remained persistent, holding well above the Fed's 2% annual target and validating concerns over further potential Fed action. The May CPI report is due out June 13th, just ahead of the Fed’s next meeting.
Fed Meeting - No Fed meetings have taken place since our last update. The next meeting is scheduled for June 13-14 and we will notify you of any rate hikes in our next update.
A Landlords Perspective On The Renter's Bill of Rights
The concept of a Renter's Bill of Rights has been gaining traction in recent years, with the aim of addressing inequalities in the rental market. The White House has proposed a blueprint for such a bill, outlining five principles that, if implemented, could significantly alter the landscape for both renters and housing providers. While this blueprint does not carry any mandate, it is crucial for landlords to understand its potential implications and pay close attention to the areas in which unfair policies might emerge.
Below is a brief summary of the White House’s proposal as well as a few opinions on what considerations might produce a more balanced solution.
1. Access to Safe, Quality, Accessible and Affordable Housing: The first principle of the proposed bill is that renters should not pay more than 30% of their household income on housing costs. This principle could ensure that renters have access to habitable properties with functioning appliances at fair rental rates. It could also promote equitable on-boarding practices, thereby reducing tenant exploitation.
What it gets right: A combination of bad housing policy and rapid inflation has left many tenants “rent burdened” or spending more than 30% of their income on housing. Many urban markets are increasingly expensive, and in an economy where wages don’t keep up with inflation, this is the result. It’s a problem and needs a comprehensive solution.
What it’s missing: The idea to solve this problem by controlling the cost of rent is problematic at best. In a fair and free market economy a seller should list a price and receive what the market will bear, not have an arbitrary cap applied to their earning potential. This is an income and affordable housing issue, not an evil landlord raising prices issue. Any proposal that ignores long term solutions to address income inequality and construct more affordable housing will be ineffective.
2. Clear and Fair Leases: The bill emphasizes the need for transparent leases with simple language, clear policies related to security deposits, and reasonable notice of actions relating to the property. This principle could enhance the clarity and fairness of rental agreements, benefiting both landlords and tenants.
What it gets right: Almost everything. Leases should be easy to read, easy to understand, and transparent. Fee’s should be fully disclosed, expectations clearly laid out, and penalties for non-compliance outlined up front.
What it’s missing: In the quest for fairness and transparency, well intentioned regulatory policy often goes too far and become overly burdensome to implement. What should be as simple as implementing formatting guidelines for leases, requiring fee disclosure on page one of a lease, and mandating application qualification criteria be available, we end up with caps on application fees and restrictions against valid screening tools. Ensure that the process is fair for both landlords and tenants.
3. Education, Enforcement, and Enhancement of Rights: The bill proposes that all governments should ensure renters know their rights to protect against discrimination. The addition of "source of income" to the list of protected areas could further safeguard renters' rights.
What it gets right: When all parties are well informed, agreements between them tend to work out well. When one party doesn’t understand what’s fair, this can lead to problems. All tenants should be well informed about the process of renting and not suffer from discriminatory practices.
What it’s missing: The idea of a level playing field. Landlords can also be discriminated against with unfair eviction policies, and have their rights violated by tenants who learn the loopholes and game the system. Anytime a policy conversation completely ignores half of the stakeholders, it’s an issue.
4. The Right to Organize: The proposed bill supports the right of renters to organize without obstruction or harassment from their housing provider. This principle could empower tenants to voice their concerns and negotiate better living conditions.
What it gets right: Tenants deserve the right to organize just like workers do. They should be able to express opinions and advocate for change without fear of retaliation.
What it’s missing: There should be equal protections for landlords against individuals or groups making false public accusations, using defamatory language, or violating community rules. It doesn’t take much digging to find examples where powerful groups on both sides use their power to protect bad actors who are “on their team.” Wrong is wrong and if we are going to give rights to one group, then we must balance them against the rights of the other.
5. Eviction Prevention, Diversion, and Relief: The bill advocates for a fair and legal eviction process, access to resources to avoid eviction, and immediate sealing of eviction cases. This principle could provide renters with greater security and stability, reducing the fear and uncertainty associated with potential eviction.
What it gets right: A fair eviction process is essential to good housing policy. As we saw during the pandemic, resources for rental assistance also make a profound impact on residents in need. Efficient processes for both that deliver the right resources to those in need make life better for everyone.
What it’s missing: Fair eviction policies don’t have tenants in a home without paying rent for months and years on end. Trying to solve the eviction problem by making policy that removes the responsibility of tenants to pay rent, is disingenuous. Additionally, like filing bankruptcy, getting evicted is a valid indicator of creditworthiness. Attempting to safeguard people by withholding key information instead of building an established path to recovery is evidence of a broken idea.
In conclusion, the proposed Renter's Bill of Rights presents a mix of potential benefits and challenges. While it could promote fair housing practices and protect renters from exploitation, it could also impose unnecessary and unfair burdens on landlords. As this blueprint is not yet policy, landlords should stay informed about potential legislative changes that could affect their operations, but rest assured, that these issues will be hotly debated across the country in years to come.
Utah Real Estate Market
May 2023 saw a nice rebound for the Utah real estate market. The number of sold transactions climbed 16.1%, 3.9% more listings were added on average from last month, and the median sold price climbed 3% to the highest we’ve seen since September of last year. While it’s true that much of these increases can be explained by the typical seasonal surge in home sales, it’s good to see all three categories rebounding from the winter lows.
Rent Report
There are signs in this month’s data that we are perhaps reaching an equilibrium, but there is no doubt that the wild rental market we’ve enjoyed over the past few years is over. Month over month, rent growth is mostly flat with modest gains in some submarkets and minimal declines in others. Year over year, however, we have firmly settled into negative territory and this should highlight an important strategic shift in summer leasing strategy. Since rents are lower than this time last year, Utah landlords would be wise to prioritize lease renewals. A renewal, even at the same rate as last year, is likely to bring you a higher rental rate than what you might get on the open market plus you save the turnover costs.
Industry Updates
Montana Wins Against Rent Control - On May 1, 2023 the governor of Montana signed SB 105 into law, making it the latest state to preempt rent control. This legislation prohibits local governments from controlling the amount of rent charged for private residential or commercial property, except for properties in which the local government or a housing authority has an interest. This makes Montana the 33rd state to preempt local jurisdiction's rent control authority, following similar prohibitions in Florida and Ohio. However, the trend is reversed in other states, with several jurisdictions enacting rent regulations or further limiting a property owner's ability to set their own rates. For context, the National Apartment Association (NAA) is currently tracking 83 state bills that would regulate rents so there will be much more to follow regarding rent control.
COVID Era Policies Still Enforced in California = Several cities in California continue to enforce laws protecting tenants from eviction or rent increases, extending pandemic-era policies that most other parts of the country have wound down. San Francisco, Oakland, Berkeley, and Los Angeles have all extended local eviction bans or rent freezes into the summer months or beyond. Despite the World Health Organization declaring an end to the Covid-19 emergency, proponents of the California bans argue that lifting all protections would exacerbate homelessness in cities with some of the country’s highest housing costs. However, landlords argue that there is no longer any pandemic justification for many renter protections and that some tenants have exploited the laws to avoid paying rent. Both perspectives are valid, which is why we have long advocated for a balanced approach to housing issues where programs exist to help tenants in need, but mom and pop landlords aren’t expected to offer free housing.
