We are entering into one of the darkest recessions ever that will rival the housing crisis of 2008.
Or are we?
Traditionally, the definition of a recession is ‘a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.’
Which, this negative decline was already seen in Q1 and Q2 of 2022.
However, the National Bureau of Economic Research newly defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The variables the committee typically tracks include real personal income minus government transfers, employment, various forms of real consumer spending, and industrial production.
Notably, there are no fixed rules or thresholds that trigger a determination of decline, although the committee does note that in recent decades, they have given more weight to real personal income less transfers and payroll employment.”
And because the Bureau relies on government statistics, which have never been wrong, there is significant lag time from when a recession is actually happening and when it’s “officially” happening. This allows them to accurately Monday Morning Quarterback something that we have been feeling the weight of the entire time.
However, I’m not here to argue the politics behind why the definition of a recession is changing, I’m here to tell you the cold hard facts. Especially those affecting the real estate short term rental market.
Just recently, AirDNA put out statistics for Q4 2022 showing that the gap between demand on the platform and the supply of host increases was slimming down for short term rentals on Airbnb. This is good news as the results in Q3 2022 were quite dismal as Airbnb announced its greatest quarter ever while forgetting to mention that supply was vastly outpacing demand leaving their hosts in the dust. So it’s great to see supply and demand coming closer together in the last quarter of the year.
Additionally, AirDNA noted that upscale properties continue to see increases in their Average Daily Rate, while economy and midscale properties saw declines in their ADR. Which proves further that true short term rentals shouldn’t have as much of an impact on affordable housing.
Because even if there were properties in the affordable housing category on Airbnb, they aren’t performing well and are not the type of properties investors are looking for. But that’s a whole other video that I’ll be putting out in the near future.
And if you want to keep hearing more insights over real estate and short term rentals, make sure you subscribe to the channel and like this video. With the ever-changing environment around real estate and regulations you do not want to get caught with your pants down.
So, the White House just proposed a new bill in the first month of 2023 around the topic of rent control. This bill would prevent ‘unreasonable’ rent increases and ‘unjust’ evictions while strengthening tenant rights and penalizing landlords who violate those rights.
My only question here is what’s ‘unreasonable’ and ‘unjust’? There’s way too much subjectivity in these words for there to be a clear cut path forward. I agree that Landlords should keep their properties in good condition and provide an excellent experience to tenants, but at the end of the day landlords are the ones who own the buildings and take all of the risk.
These are investments that took a lot of effort and discipline to acquire. There shouldn’t be rent control, there should just be a better balance for what renting looks like. Airbnb has a pretty great way of rating both hosts and guests that keep both parties protected. You want to make more as a landlord? You gotta keep your place nice. Want a nice place to stay? Don’t trash the places you are staying. Pretty Simple.
In 2019, several states including California, New York, and Oregon passed new rent control laws aimed at protecting tenants from excessive rent increases and unjust evictions. These laws typically limit the amount by which landlords can increase rent each year and provide additional protections for renters facing eviction.
However, not all states have embraced rent control. Some states, such as Texas and Florida, have laws that prohibit local governments from enacting rent control policies. Other states have laws that place limits on the types of properties that can be subject to rent control, such as excluding single-family homes.
In recent years, the debate over rent control has become increasingly political, with supporters arguing that it is necessary to address the affordability crisis, while opponents argue that it will discourage investment in new housing and lead to decreased supply.
So in all of the confusion, let’s talk about some truths around the negative effects of rent control from a Stanford Case Study;
- Reduced investment in rental housing: Rent control policies can discourage investment in rental housing by reducing the potential returns for landlords and property owners. This, in turn, could lead to a decrease in the supply of rental housing, driving up rents and making it more difficult for tenants to find affordable housing.
- Inefficiency in the rental market: Rent control policies can create inefficiencies in the rental market by distorting prices and reducing the incentives for landlords to maintain and improve their properties. This can result in a decrease in the quality of rental housing and a reduction in the overall supply of housing available to tenants.
- Unintended consequences for tenants: While the intention of rent control is to make housing more affordable for tenants, it can have unintended consequences, such as making it more difficult for low-income renters to find affordable housing. This is because landlords may choose to restrict their rental units to higher-income tenants who are willing and able to pay higher rents.
- Lack of flexibility: Rent control policies can limit the ability of landlords to respond to market conditions and make necessary adjustments to their rental rates. This can make it difficult for landlords to maintain the financial viability of their properties and can reduce the overall supply of rental housing available to tenants.
So to summarize, there are positive things happening in the real estate market, however the government isn’t making it any easier. With changing of definitions all the way to rent control, it seems like there’s a lot of wasted efforts over the politicization of what should just be an open and honest conversation.
Rent Control only favors the tenant. Instead, what we should be doing is looking for solutions to balance the two sides out and not some clickbait thumbnail from the White House to garner power.
That’s it for today, please leave a comment down below and let me know your thoughts on where the markets headed. Are we in a recession? Should there be rent control? Let me know, but until next time, Peace!
- Definition of Recession
- Govt’s Definition of Recession
- AirDNA Data Q4 2022
- The Renters Bill of Rights