A staggering new analysis from Zillow highlights perfectly the unintended consequences of central banking policies that drive massive asset bubbles but minimal job/wage growth. According to the study, surging home prices and rising rents have now resulted in a record 30% of American adults, up from 21% in 2005, being forced take on roommates just to afford monthly rent payments.
As rent consumes a growing share of household income in many cities, some people must relocate or find ways to offset rising prices. An increasingly popular way to cut costs is by adding a roommate. Nationally, 30 percent of working-age adults—aged 23 to 65—live in doubled-up households, up from a low of 21 percent in 2005 and 23 percent in 1990.
We define a doubled-up household as one in which at least two working-age, unmarried or un-partnered adults live together. For example, a 25-year-old son living with his middle-aged parents would constitute a doubled-up household, as would two 23-year-old roommates who are not partnered to each other. A doubled-up household contains people who might choose to live apart under different circumstances, financial or otherwise.
Not surprisingly, large metropolitan areas like New York, LA, Miami and San Francisco saw the highest percentage of their adult populations doubling up on housing.
Of course, as the following chart illustrates, there is a strong correlation between doubling-up and rent affordability with the most expensive cities seeing more than 40% of their adult residents living with roommates.
"As rents have outpaced incomes, living alone is no longer an option for many working-aged adults," said Zillow senior economist Aaron Terrazas. "By sharing a home with roommates -- or in some cases, with adult parents -- working adults are able to afford to live in more desirable neighborhoods without shouldering the full cost alone. But this phenomenon is not limited to expensive cities. The share of adults living with roommates has been on the rise in historically more affordable rental markets as well. Unless current dynamics shift and income growth exceeds rent growth for a sustained period of time, this trend is unlikely to change."
As we"ve noted frequently, the biggest increases in doubled-up houses has come from the millennial generation as thousands of college seniors, armed with their $250,000 anthropology degrees, are apparently finding it difficult to land their dream jobs after graduation. That said, while millennials have seen the biggest increases, people across the age spectrum have also become increasingly reliant on roommates to meet their monthly rent obligations...
...so at least we all have that to look forward to in retirement.
Millennial homeownership rates are essential to understanding the housing market because they facilitate additional home sales for other people.
How does this work? As HowMuch.net explains, suppose you make an offer on a house. The current owner is also probably on the market, and he or she likely has a contingent offer on another house. This sets off a chain reaction throughout the economy. Millennial homeownership rates are therefore an easy way to judge the economic vitality of any given area.
Our viz takes millennial homeownership data from Abodo and maps it by metro area across the country. Abodo adopted the data from the U.S. Census Bureau, which regularly collects a variety of information about the population, including the age of homeowners, the estimated value of their homes, and how long it would take to accumulate a 20% down payment. Our numbers are from 2015. We then overlaid this information across metro areas with bubbles representing the portion of millennial homeowners in each market: the bigger the bubble, the more millennial homeowners there are. We also color-coded each bubble to represent the median value of their homes—dark red circles mean the homes are worth over $500k, and dark blue means under $200k. This gives you a quick snapshot of the overall economy and the housing market.
The first trend you can see on the map is a clustering of red circles on both the West Coast and along the Northeast.
The most expensive city in the country for millennials is San Jose, CA, where the average millennial buys a home worth $737,077. Seattle, WA in the Northwest is also relatively expensive at $342,769. These are population-dense areas with booming tech sectors. At the other end of the spectrum, you can see clusters of blue bubbles across the Midwest in old manufacturing cities like Detroit, MI ($148,404) and Cleveland, OH ($160,251). Memphis, TN is the cheapest place for millennials at $142,795. Southern states like Texas and Florida are also relatively affordable thanks in large part to their suburban sprawl, which Zillow predicts will expand next year.
It’s no surprise that homes are more expensive in California (think Silicon Valley) than the industrial heartland, but consider how homeownership rates change based on affordability. The red bubbles all tend to be smaller than the blue bubbles. This means that as homes get more expensive, millennials become increasingly unable to afford them. It’s not like there’s a surplus of ultra-rich millennials buying up all the houses in California and New York. Millennials are just as sensitive to high prices as everyone else.
Let’s break the map down into a top ten list of the urban areas with the highest rates of millennial homeownership, combined with the average price of their home. A full 42% of the millennials living in Minneapolis-St. Paul, MN own their own home, the highest rate in the country.
1. Minneapolis-St. Paul-Bloomington, MN-WI: 42.4% and $222,528
2. St. Louis, MO-IL: 40.2% and $167,791
3. Detroit-Warren-Dearborn, MI: 40.2% and $148,404
4. Louisville/Jefferson County, KY-IN: 38.5% and $158,974
5. Pittsburgh, PA: 37.5% and $152,731
6. Indianapolis-Carmel-Anderson, IN: 37.4% and $161,856
7. Kansas City, MO-KS: 37.1% and $170,254
8. Nashville-Davidson--Murfreesboro-Franklin, TN: 37.0% and $213,090
9. Oklahoma City, OK: 36.7% and $172,485
10. Baltimore-Columbia-Towson, MD: 36.3% and $272,805
Buying a home is often the biggest financial decision anybody makes, and that’s especially true for young people. And there’s a lot to consider when buying your first home, but one thing other than affordability to keep in mind is how many other millennials are in the same situation. If you’re a millennial looking to buy a home, and you want to live next to other young people, you just might have to move to the Midwest.
This week we discussed Algebris Investments’ ranking of the world’s largest financial bubbles. London property ranked second on the list, behind Australian property (see here). There is growing evidence the former is bursting. In its October 2017 survey, the Royal Institute of Chartered Surveyors (RICS) reported the largest proportion of respondents seeing a drop in London house prices versus the previous month since 2009. The net balance at nearly two thirds (-63%) in the capital contrasted sharply with a national average which was marginally in positive territory (+1%). The RICS data corroborated yesterday’s Bank of England’s regional agents’ report which highlighted “signs of excess supply in London and the South, but some excess demand in most other parts of the United Kingdom”.
London’s housing market is being battered from all sides. A survey by the Royal Institution of Chartered Surveyors showed a price gauge at its lowest level for seven years, and far below the national average.
Real-estate agents are more pessimistic about the market in the capital than any other region, with contributors flagging a potent mix of concerns, including Brexit uncertainty, the Bank of England’s interest-rate hike and the government’s budget later this month.
Speaking to the FT, RICS’ chief economist gave his take on what’s causing the weakness, surprisingly only referring to Brexit indirectly.
Simon Rubinsohn, RICS chief economist, said various factors - including higher cost of moving, a lack of fresh listings and political uncertainty - seemed to be taking their toll on market activity, with first-time buyers focused on Help to Buy properties rather than the existing housing stock.
“With both buyer enquiries slipping and sales expectations also subdued, the sense is that homeowners are staying put,” he said. “A stagnant second-hand market is bad news for the wider economy.”
Besides London, the RICS survey showed that house prices are declining in three other regions, two of them being “commuter-able” to London – the South East and East Anglia – as well as the North East.
As far as the outlook is concerned, the RICS survey painted a negative picture with the majority of respondents expecting further price falls in London. Furthermore, the price weakness is expected to spread beyond London and the three other regions to include the South West and the West Midlands. On a national basis, the balance of respondents expecting house prices to fall was -10%.
Bloomberg listed some of the respondents’ comments about the London market.
Buyer Interest Collapse
“We usually have buyers registering, keen to move before Christmas, said Alan Fuller of Allan Fuller Estate Agents in Putney. “So far we are registering 80 percent less than normal during October. Vendors more receptive to price drops and some are agreeing to 10 percent reductions, which are then attracting interest.”
Limited Transactions
“October saw buyers more prepared to make offers, many at levels that vendors (who are under no pressure) are not willing to accept, limiting the value of transactions,” said Robert Green of John D Wood & Co. in Chelsea.
Brexit Uncertainty
“The market is slowly adapting to higher” stamp duty, said Christopher Ames of Ames Belgravia, “but still not coping with the Brexit uncertainty.”
10% Below
“Market remains active up to 1.5 million pounds, whereas above 2 million pounds offers are coming in around 10 percent below asking,” said JJ King at Andrew Scott Robertson in the Merton borough. “Instruction levels are slowing although valuations are up.”
Luxury Homes
“The prime London market shows signs of regaining momentum,” James Crawford of Knight Frank said. Simon Aldous of Savills disagreed, saying prices across the best districts are continuing to soften with the greatest falls at the top end of the market.
Suppressed Demand
“Brexit uncertainty and stamp duty continue to suppress market activity,” said James Gubbins of Dauntons in Pimlico. Terry Osborne of Tuckerman Residential in the SW1 post code was even more succinct with his one-word summary of the market: “Brexit.”
The comment which caught our eye more than the others concerned the E2 post code. Not only does it border the City of London, but parts of it have become very “trendy” in recent years.
East London Crash?
“The sales market has dramatically changed and technically crashed across the board,” said valuer Josh Homans. “In E2, the difference between asking and sale price is a staggering 20 percent.”
The Revolutionary Abolitionist Movement is Antifa on steroids. An offshoot group that has popped up has a website with some pretty extreme ideas, including expropriation of property from their enemies. They’ve declared war against capitalism and the state, promoting “militant defense.”
Their intro says:
We situate our political movement in the context of the abolitionist struggle against slavery and continue in the tradition, from Nat Turner to the Black Liberation Movement. We believe the Civil War was never resolved and the system of slavery transitioned into the prison industrial complex. Our struggle today must begin from this starting point. Lastly, as revolutionary anarchists, the abolitionist struggle must be extended to the state and capitalism, the perpetrators of oppression. The revolutionary movement in the US today is at a cross roads, as fascist movements are expanding, and the state becomes increasingly authoritarian.
They want to build a new Underground Railroad to free people from detention, incarceration, deportation, or white supremacist violence. They welcome “comrades” to aid in their efforts to build “organized defense groups, local councils, and regional/national councils.”
Let’s set the mood with their introductory video.
I guess they’re not planning on holding hands around the campfire and singing Kumbayah.
This kind of “anarchist” should not be confused with the voluntaryist type of anarchist, who, as a group, strongly supports free market principles.
While a lot of us wish the state was not so state-y and that the police were less police-y, most rational people aren’t ready to go out and lay a beatdown on anyone they perceive as an enemy. Nor do we wish to demonize capitalism or give away all our personal property for the greater good.
The political foundation of the Revolutionary Abolitionist Movement consists of:
Self-Defense
The Neighborhood Council
Conflict Resolution and Revolutionary Justice
Abolition of Gender
Expropriation and the Cooperative Economy
While all of these are alarming, I’m particularly concerned about their calls for “self-defense,” “revolutionary justice,” and “expropriation.
Let’s look at what they have to say about these topics through a variety of direct quotes.
Militant Self Defense
The Revolutionary Abolitionist Movement endorses “militant” self-defense, citing the tactics of the Black Panthers, the Black Liberation Army, and the Rojava Revolution in Syria. They model themselves, particularly, after the Rojavas.
The training of these new militants is the revolutionary heart of the Rojava Revolution. The long-term intentions of the training programs are to ensure that everyone can participate in self-defense. To that extent, there are also localized training programs that arm the public for a second tier of neighborhood defense. The Self Defense Forces (HPC*) were formed for this purpose. While specific armed groups, such as the People’s Protection Units and Asayîş (YPG** and YPJ*** respectively), have been formed to fight external enemies, the HPC are civilians that get arms training with the specific goal of maintaining autonomy against internal forces that might seek to consolidate power. They are volunteers who receive both political education and self-defense training.
These armed groups are able to defend their communities from attacks without compromising revolutionary values. As the YPG and YPJ liberate ISIS territory new communities become incorporated into their political project. Rather than establish a top-down system of governance, the revolutionary movement establishes new neighborhood councils and communes, feminist education programs, and decentralized local-based militias within each liberated town. To implement this form of political organization, there is undoubtedly a give and take. While the towns receive the infrastructure necessary for self-governance, such as weapons and training from the YPG to set up their own, local defense groups, they agree to uphold certain social principles like feminism and social ecology. (source)
One tactic they endorse is, basically, beating up “Nazis.”
Anti-fascist tactics – focused primarily around the use of physical force—proved effective in forcing neo-Nazi groups out of entire neighborhoods. The tactics were simple, if they came upon a neo-Nazi, they would use sufficient force to drive them away. The network was so successful that it eventually grew to 100 chapters. By joining in a nationwide network, they were able to help spread and strengthen the model while still maintaining local control over each chapter. (source)
Of course, who gets to decide whether someone is a Nazi? Must the person be wearing a swastika t-shirt or a white hood? Or is this just an arbitrary decision based on the color of their skin or who they voted for? You can see how easily this could go downhill.
They offer to train anyone in self-defense who wants it. But – they don’t stop at “defense.” In fact, offense is their plan. They intend to develop “the capacity to begin launching offensive actions against fascists and the regime.” Their common enemies are “fascists, right-wing militias, and State forces. ” (source)
One place they may run into trouble is their desire to be egalitarian.
Successful self-defense must incorporate revolutionary values and practices. In Rojava, combatants are trained both in fighting techniques and the benefits of creating a feminist, egalitarian society. They put these values into effect through their relationships. For example, to dismantle the lingering effects of patriarchy, no man can give a woman an order; to maintain participation and egalitarian relationships, all fighters contribute to decision-making within units, particularly by selecting their own leaders for specific missions.
Look. Everyone gets a trophy.
Revolutionary Justice
In the section on Revolutionary Justice, the Revolutionary Abolitionist Movement calls for an onslaught of violence against police officers. Now, I’m not a fan of the police state or police brutality any more than they are, but prison uprisings, civil unrest, violence against law enforcement, and riots are not the answer.
Every prison uprising from Attica* to Lucasville**, is an example of revolutionary justice. Every group that goes underground to launch clandestine attacks against bondage and oppression, like the Black Liberation Army or the United Freedom Front***, engages in acts of revolutionary justice. The uprisings of the 1960s in Watts, Newark, and Detroit, to the Los Angeles riots, and the recent insurrections in Ferguson and Baltimore sparked by executions from police are manifestations of revolutionary justice. (source)
They appear to wholeheartedly endorse violence and even execution as the answers.
No platform, no dialogue, no inch of territory, and certainly no concern can be ceded to those who either threaten or unleash authoritarian, white supremacist violence. As the Italian anarchist, Alfredo M. Bonanno has eloquently put it, “The life of someone who oppresses others and prevents them from living is not worth a cent.” (source)
They condemn those who call for peaceful protest.
Revolutionary justice is an unpredictable, yet inevitable, element in revolutionary struggle. As we move towards liberation, there will be spontaneous eruptions, moments to support and side with, as well as alliances to create. The more power tries to suppress the population, the more defiant the acts of revolutionary justice become…
…When police killed Michael Brown in Ferguson, the town erupted in riots. No sooner had they begun this act of defiance, when non-profits and faith “leaders” descended upon the town to induce people to protest “peacefully” and attempted to de-escalate the situation. On the other hand, riot police and armed right-wing militias surrounded the rebels, cornered them in a sea of “illegality” by declaring curfews, and then swept people up with brutal arrests and long jail terms. Without revolutionary objectives, or the foundations for a sustained revolutionary conflict, everyone had to, eventually, reconcile living with the oppressive State that they were just rebelling against when the riot subsided.
The most essential tasks are to create the ideological underpinnings for revolt and the necessary infrastructure that can sustain action and long-term forms of organization. (source)
They intend on long-term revolt and plan to “derail forces that want to bring people back into the fold of power: nonprofits, political parties, and authoritarian political groups.”
Expropriation of Property
First, let’s call expropriation what it really is: theft. But the Revolutionary Abolitionist Movement believes it’s entirely justified as long as they’re the ones doing it.
Revolutionary struggle necessitates an aspiration for collectivity. Those who exploit us and withhold the fruits of our work from us will not willingly give up their wealth and power. To carve out autonomous territory, or to begin the revolutionary process, goods, land, and tools must be expropriated, or taken away from those who withhold them. (source)
They cite a group they admire in Greece:
For example, revolutionary anarchist groups in Athens have been working with refugees from the Syrian Civil War. The refugees are routinely attacked by fascists and often denied housing, food, and health care. Anarchist groups have taken over abandoned hotels and have invited refugees to live in them, (source)
They gush over how businesses were taken over from the owners during the Spanish Civil War.
For expropriation to be a successful tactic political organizations must already be in place. As goods and production are taken over, they can be put into collective hands, and organized for communal use. During the Spanish Civil War, workplaces were seized after the owners fled or stopped production to sabotage the revolution. Revolutionaries continued until all major places of work were taken over; many were run and controlled by the workers. In otherscommittees were established to override a lingering boss. (source)
They’re jazzed about collectivism.
While conducting the military struggle on the front, militants in the rearguard helped form workers’ councils and rural communes, and since anarchists were at the forefront of the struggle, the council-based system was remarkably egalitarian. Workers seized factories, peasants collectivized the land, and even the revolutionary militias were organized in a participatory and non-hierarchical fashion as a result of the anarchist struggle. Indeed, the revolutionary militias were formed in a similarly horizontal manner as the collectives, which reciprocally provided them with both weapons and other provisions. The symbiotic relationship between the worker’s councils, collectivized land projects, and horizontal militias demonstrates how the political foundation facilitated cooperation between each of the three organizational structures. (source)
People got upset when I posted an article about a communist group last week who was planning sedition against our country. They said that I was name-calling when I referred to them as communists.
This leads me to believe that there are a lot of folks who don’t know what communism IS.
Communism is:
a political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person works and is paid according to their needs.
It is the opposite of capitalism:
an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.
Communism abolishes private property and personal profit and redistributes wealth. Here are the tenets of the Revolutionary Abolition Movement. When you read them with these definitions in mind, is there any other word that fits so well?
The Abolitionist struggle must take up the immediate fight to abolish prisons, courts, and ICE detention facilities.
As Abolitionists, we must fight unequivocally with Black, Latino, Native, Muslim people, and all those subjected to prison society and white supremacy.
This struggle must be feminist, and predicated on queer and trans liberation.
The Abolitionist struggle must fight for decentralized, commune-based political organization, and stand resolutely against capitalism and the State.
The struggle must be oriented toward militant self-defense, and devise specific plans for offensive actions against reactionary forces.
The Abolitionist long-term goal is to get rid of the justice system, the nation-state, and the capitalist economy. (source)
Really, this is the culmination of decades of indoctrination in the Marxist education system. But these people who think they’re seeking “freedom” would end up with just the opposite should their communist dreams come true. The underlying theme throughout their document is:
We will burn down the American plantation once and for all.
Police in Rome evicted 100s of refugees that had occupied Piazza Independenza just one block from the country’s main train station.
The squatters were defiant so local police used water cannons and batons in the forceful eviction. As Reuters reports,
Some 100 refugees had occupied Piazza Independenza since Saturday, when most of about 800 squatters were evicted from an adjacent office building they had occupied for about five years.
Hung on the building was a sheet with writing reading “We are refugees, not terrorists” in Italian.
A small fire burned on the pavement and a sheet hanging from a first-floor window was set alight by squatters inside. Most of the squatters were Eritreans who had been granted asylum. Police said they had refused to accept lodging offered by the city.
Per Reuters,
More than 600,000 boat migrants have arrived in Italy from North Africa since 2014. Some 200,000 asylum seekers now stay in state-run shelters.
Conclusion
said it the best, “This is Rome, Italy. Once the most civilised place on earth”
Single-family rents, as measured by the CoreLogic Single-Family Repeat Rent Index (SFRI), climbed steadily between 2010 and 2016. However, as CoreLogic reported last week, rent growth has seen a material decline during the last 18 months. The index shows that rent growth has been slowly decelerating (Figure 1) since February 2016 when it peaked at a 4.3% year-over-year increase. As of May 2017, single-family rents increased 2.9% year over year, a 1.4% point deceleration since the February 2016 peak. The index measures rent changes among single-family rental homes, including condominiums, using a repeat-rent analysis to measure the same rental properties over time.
Corelogic"s analysis of the value tiers of the index reveals important differences.
Figure 1 shows that the index’s overall growth was pulled down by the high-end rental market, defined as properties with rent amounts of 125% or more of a region’s median rent. Rents on higher-priced rental homes increased 2% year over year in May 2017, down from a gain of 3.1% in May 2016. Growth in the low-end market, defined as properties with rents less than 75% of the regional median rent, increased 4.5% in May 2017, down from a gain of 5.6% in May 2016.
Rent growth varies significantly across metro areas and over time. Figure 2 shows the year-over-year change in the repeat rent index for 20 large metro areas in May 2017.
Figure 3 shows the relationship between the index growth and rental vacancy rates for 37 metro areas in Q1 2017.
Cities with limited new construction and strong local economies that attract new employees to the market tend to have low rental vacancy rates and stronger rent growth. Seattle experienced 5.4% rent growth year over year in Q1 2017 2 , driven by strong employment growth of more than 3% year over year and rental vacancy rates of 1.9 percent in Q1 2017, about 5 percentage points lower than the 7% national single-family rental home vacancy rate.
In contrast, Houston, which has been hit with energy-related job losses since early 2015 and a rental vacancy rate of 11.3% in Q1 2017, experienced a 1.8% year-over-year decrease in rents according to CoreLogic data.
We"ve written frequently about the pending collapse in used car prices that will inevitably be brought on by a surge in leases over the past 5 years. With wages stagnant and car prices rising, the only way Americans could "afford" those brand new BMWs and Mercedes was to lease them.
Of course, the math behind how we got here is fairly obvious. The majority of Americans buy cars based on one factor: monthly payment. And when it comes to managing your monthly payment to the lowest level possible, leasing is the way to go. Per the Bank Rate calculator below, buying a $30,000 car comes with a monthly payment of around $600 while leasing the same vehicle might only cost $420 per month.
Of course, why buy a $30,000 Ford for a $600 monthly payment when you could lease a $40,000 BMW for $560? You can afford it so long as you can cover the monthly payment, right?
Of course, the problem is that leased vehicles get returned to their originating lenders every 3 years for brand new leases...we wouldn"t want anyone driving around in a 5-year-old clunker now would we? But, as we all know, vehicles have useful lives well in excess of 10 years. Therefore, it doesn"t take too many excessive lease cycles to flood the market with used supply and bring the whole ponzi crashing down.
Which is precisely why American auto OEMs are panicked about the coming wave of lease returns and why they"re colluding with auction houses to help keep used prices higher for longer. According to Reuters, efforts to prop up used car prices include transporting cars around the country to markets where they"ll get the best pricing and basically sitting on inventory to restrict supply.
So major carmakers, including General Motors Co (GM.N) and Ford Motor Co (F.N), are aligning with auto auction houses with aggressive moves to make sure they are getting the best prices for their vehicles. Such maneuvers include transporting the automobiles to where the greater demand is based on real-time pricing data, spending more to spruce up used cars and slowing the pace which leased cars get moved to used car lots or auction houses.
Auto auction houses such as Manheim in southeastern Michigan are where the romance of new car marketing goes to die. The dominant player in the U.S. auction market along with rival KAR Auction Services Inc (KAR.N), Manheim treats vehicles like commodities, grading them on a fine-tuned scale from one (poor) to five (excellent) that provides dealers with certainty and transparency.
Increasingly, the auction houses and automakers are collaborating to try to raise the scores, and the prices, of vehicles running through auctions. Auction houses have offered add-on reconditioning services on used vehicles for decades, but after the lean years following the Great Recession, demand is rising for those higher-margin services.
Of course, putting a rapidly depreciating asset in a storage lot, exposed to the elements, while waiting for prices to recover sounds like a "great" idea.
Meanwhile, a temporary re-balancing of inventory around the country could yield short-term benefits. That said, we do wonder, if there was so much money to be made from selling used vehicles in different markets, why the OEMs just chose to forego those incremental profits until now. Perhaps they were just making too much money? Yeah, that must be it.
For example, the national price for a 2015 Chevrolet Malibu with average mileage the week of June 11 was $15,514, according to data compiled for Reuters by car-shopping website CarGurus.
In Memphis, that Malibu cost nearly 9 percent above the national average fair price, but in Miami it would sell for more than 9 percent below that price, representing a difference of $2,700.
Manheim"s Matt Trapp, whose territory includes the U.S. northeast, says around 40 percent of vehicles coming off leases are returned to dealers within around five hours" drive of New York City. Many are now being shipped to other regions.
In New Jersey, for instance, one in three off-lease vehicles now leaves the state, Trapp says.
In the end, however, basic math and those pesky supply/demand models tend to work. So, try as they might to delay the inevitable, we suspect used car prices will eventually succumb to the flood of inventory that"s about to hit the market.
Malls are bearing the brunt of changes in retail, but they’re only the canary in the coal mine.
Let’s start with a simple premise; commercial real estate (CRE) will change more in the next decade than it has in the past hundred years. Anyone who thinks they can fully foresee how it will evolve is lying to you. The only certainty is that highly leveraged real estate investors and lenders will be obliterated as current models evolve faster than anticipated.
In the past, retail was retail, warehouse was warehouse and office was office—the same for all other CRE classes. There was some cross-over, but the main commercial real estate components stayed segmented for the most part. Now, with big box stores, the lowest hanging fruit for online shopping to knock off, going to dodo-land, there will be hundreds of millions of feet of well-located space suddenly becoming available. People act as if there are enough Ulta Beauty and Dick’s Sporting Goods to go around. However, you cannot fill all of this space with the few big box retail concepts still expanding—especially as many stalwarts are themselves shrinking.
As a result, a huge game of musical chairs is about to take place. Why pay $20/ft for mid-rise office space, if you can now move into an abandoned Sports Authority for $5/ft. Sure, it doesn’t come with windows, but employees like open plan space and there’s plenty of parking. Besides, with the rental savings, you can offer your staff an in-house fitness facility and cafeteria for free. Does your mega-church need a larger space? There’s probably a former Sears or Kmart that perfectly accommodates you at $3/ft. Have an assisted living facility with an expiring lease? Why not move it to an abandoned JC Penney—the geriatrics will feel right at home, as they’re the only ones still shopping there.
Go onto any real estate website and you will find out that huge plan space is nearly free. No one knows what the hell to do with it and the waves of bankruptcy in big box are just starting. As online evolves, these waves will engulf other segments of retail as well.
Type Macy’s into Loopnet.com and look at how many millions of feet of old Macy’s are available for under $10/ft to purchase. Retail’s problems are about to become everyone’s problems in CRE. When the old Macy’s rents for $2/ft, what happens to everyone else’s rents? EXACTLY!!! What happens if a CRE owner is leveraged at 60% (currently considered conservative) and leasing at $15/ft when the old HHGregg across the street is offered for rent at $3/ft? An office owner can lower his rents a few dollars, but at the new price deck, he cannot cover his interest cost, much less his other operating expenses. What happens to a suddenly emptying mid-rise office building? It has higher operating expenses than the box store due to full-time security and cleaning—maybe it’s a zero—in that future market rents no longer cover the operating expenses of the asset, much less offer a return on investment. I know, crazy—that’s how musical chairs works when demand contracts and the supply stays the same.
What happens to the guys who lent against these assets? Kaplooey!!!
America currently has more feet of retail space per capita than any other country. For that matter, America has more feet of office and other CRE types per capita as well. A decade of low interest rates has made this problem substantially worse. Think of the two malls that I spoke about in the last piece—they weren’t done in by the internet, they were done in by a tripling of retail space in a cities that are barely growing. These cities simply ran out of shoppers for all of this space. Now the mall is empty—heck the strip retail is only partly filled in. The next step is that rents will drop—dramatically. The owners of each asset, the mall and the strip center will go bust. Neither has a cap structure that is designed for dramatically lower rents. Neither has an org structure designed for carving up this space for the sorts of eclectic tenants that will eventually absorb it over the next few decades.
CRE has had it so good for the past 35 years, that most owners have never seen a down cycle. Sure, Dallas had too much supply in the early ‘90’s. Silicon Valley over-expanded in the early ‘00’s. It took a few years for it to be absorbed. Anyone who had capital during the bust made a fortune. This time may really be different. There’s too much supply. Short of blowing it up, it will be with us for years into the future. Without dramatic economic or population growth, some of it may NEVER be absorbed.
As an investor, this is all interesting to understand, but you don’t fully comprehend it until you have visited a few dozen of these facilities and seen how owners are trying to cope with the problem. In Miami, space is constricted. In Texas, there’s more CRE than I’ve ever seen. They keep putting it up—even if there isn’t demand currently. For three decades, they’ve always been able to fill it over time. For the first time ever, they can’t seem to fill it—in fact, demand is now declining. It is now obvious; there will be a whole lot of pain for CRE owners and lenders. Of course, someone’s pain can be someone’s gain.
As this society becomes more and more officially violent, it is probable that unofficial violence will also increase. In fact, it is almost a mathematical axiom. It is also one not comprehended by those most responsible for initiating the process.
Police and politicians seem baffled by the growing disenchantment with their class. They seem to expect people to behave toward them with respect and deference no matter what they do – by dint of the fact that what they do is Official and Legal.
Why are politicians – left and right – increasingly despised by reasonable people? Could it have anything to do with the fact that they will not leave people alone? That all they do – at great expense (to us) and with great pomposity – is decree how we will be allowed to live, what we must do and what we may not do? Most of these things being precisely none of their business to so order?
But they believe that it – that everything – is their business, which endows them with an effrontery so great they’ve lost all of the normal restraints that bind ordinary people. We have arrived at a point in our history that absolutely nothing is off the table, beyond the grasping control of these professional grifters – which is what they are. These are not people who earn an honest living by free exchange of value for value, as most of the rest of us do. These are people who take vast sums of money and then dispose of vast sums of money – none of it theirs by right.
They do so with an entitled insolence that is insufferable to those from whom the funds are mulcted. The worst part of it being that the mulcted are rendered legally defenseless against these outrages. A law is passed, an order given – and they must “stand and deliver,” as the old saying goes.
If one had a neighbor who behaved this way, one would bar the neighbor from one’s property and – if there was no alternative – defend oneself against such a violent busybody.
But what defense is there against the political class?
The Vote?
That is like trying to plug a leaky roof with sheets of copy paper. At best, the rivulets will temporarily lessen. The rain won’t let up.
Instead of protecting our rights, politicians spend their time gutting them, turning them into conditional privileges at best – to be further conditioned (or rescinded) at their pleasure. Nothing of ours is safe. Not our money, not our property, not our freedom to act and live as we see fit. There is no line over which these professional disposers of other people’s lives and property and liberties will not step as they are held back neither by ordinary human decency or legal restriction.
They have become a ruling caste, as entitled and arrogant as their feudal analogs.
The glib violence which inheres in their every act and statement has become so much a given that they hardly notice it anymore. When a new “plan” or other such is presented, the fact that what is being suggested involves more compulsion and violence, that people will have no choice, is never even mentioned. The discussion is increasingly centered only on the supposed merits of the “plan” – and alternatives to the “plan.” That is to say, other “plans.”
Resentment grows.
The average honest wage-earner in the productive economy now “owes” his Lord(s) more than a Medieval serf owed his Lord. The typical tax exaction – when one includes the income tax, the Social Security taxes (15 percent off the top for the self-employed), the taxes on their property and so on – approaches half of every dollar they earn. The burden has become so extreme that most people must now earn two incomes to support one family and work until they are too old to continue working. The oasis of financial security recedes ever farther into the distance, never to be reached.
The productive class would like to be left alone – would like for the mulching to cease. Meanwhile, the client class (their ranks swelling with Millennial Marxists) demands ever-more-mulcting for their unearned benefit, which the politicians are happy to oblige as they receive payment for their services in the form of ever-increasing power.
Social resentment swells.
As it does, more overt violence becomes necessary to keep the pressure cooker’s lid clamped in place.
Enter the Praetorians. Or what is styled law enforcement.
It is no accident that this term – which is brutally honest – has become the preferred one. Nor that these enforcers of the law wax brutal. Behave toward the citizenry as occupying soldiers, barking orders and expecting – demanding – immediate submission.
Resentment of this bullying is also increasing.
Which has the effect of justifying a kind of doubling-down by the enforcers – whose mental state is becoming exactly like that of an occupying army dealing with threatening partisans. A soldier of the Werhmacht and veteran of the drang nach Osten would understand completely the fearful bleat of “officer safety” eructed by the enforcers of the law.
More distrust. Dislike morphing into hatred, barely suppressed. On both sides.
Want to build a hideaway homestead, or establish your dream home?
If you set it up right, you can get everything you want out of the deal.
But there are some practical things you need to know, to make sure you will need be restricted by zoning, utility policies or legal trouble.
If you account for all these factors ahead of time, you can establish your home fortress with the maximum freedom and the best trade-offs for your area.
The best way to be prepared for a natural disaster or national emergency is to live in the manner you would hope to survive in. Self-reliant homesteads, ideally with their own sources of water, energy and food, and other necessary items.
Gardens and livestock pens can keep you sustained, but only if you put years of work into building them up, and improving your skills at managing the vital areas.
The best defense will be distance from major populations, areas carefully screened to avoid high-crime areas, neighbors you can trust and rely upon, while maintaining a healthy distance from. Settling into an area with minimal restrictions and zoning laws can give you the freedom you need to build, but if poverty proliferates in the area, your regulation-free homestead could quickly become a target.
You must find the healthy balance, do what you can, and plan for everything you don’t want to go wrong.
Read more:
Click here to subscribe: Join over one million monthly readers and receive breaking news, strategies, ideas and commentary. You can read more from Mac Slavo at his site SHTFplan.com
One needn’t read very much about public policy before coming across some statement to the effect that “bad economics makes good politics.” This statement is clearly untrue when good politics is defined as furthering mutually beneficial arrangements, as good economics is central to that task. But the statement is often true when good politics is defined as attracting 50%-plus-one votes on some issue or candidate, which is a much different standard, leaving plenty of room for government-imposed harms to be imposed on citizens.
Few issues reflect this divergence between “good” politics and bad economics more clearly than rent control. One of the most universally accepted propositions among economists is that rent control produces a host of adverse social consequences with its large involuntary redistribution of wealth and suppression of market prices as communicators of information and incentives. Despite that, it has been adopted as policy in many places and times — and now is a good time to revisit these issues, as efforts are currently underway in several states (including California, Oregon, Washington, and Illinois) to repeal existing statewide restrictions on rent control.
How Rent Control Destroys Value
Rent control takes a large portion of the value of residential properties from landlords. It does so by removing owners’ rights to accept offers willingly made by potential renters. And the value of the rights involved are large. For example, after Toronto imposed rent control in 1975, affected building values fell by 40% over five years, and a decade ago, such losses were estimated at $120 million annually in Santa Monica. A law like rent control, which can take half or more of each apartment’s value from the landlord, harms them just as much taking away half of their apartments, even though the latter is recognized as theft. Those stripped property values are given to current tenants, whose resulting bonanzas are shown by the fact that those under strict rent control almost never leave.
Rent-Controlled United Decline in Quality and Quantity
By taking away so much of the effective ownership of rental housing from owners, rent control creates several other additional adverse effects. Without owners’ ability to capture the value of their buildings, the rental housing stock deteriorates in both quantity and quality. Reduced incentives for maintenance and repair erodes existing rental housing. Further, owners retain little incentive to construct new rental units, bringing new apartment construction to a virtual halt, taking with it local construction jobs and tax revenues. Rental units are also converted to condos and non-housing uses to escape the burdens rent control imposes. All of this reduces rental housing availability, which worsens the problem of inadequate housing rather than alleviating it.
Rent control also increases discrimination and landlord-tenant hostility. Owners who can no longer be compensated for increased costs created through crowding, water usage, potential damage, or reduced probability of actually paying the rent — or any other unattractive tenant characteristic — have sharply reduced incentives to accommodate those who might impose them. This is why rent controlled areas, rather than helping those of low and moderate means, become increasingly populated by higher income tenants with few children. Further, tenants blame “greedy” landlords for not providing the services they desire, and landlords view tenants as the enemy engaged in an ongoing rip-off, even though rent control is the real culprit.
Rent Control Creates Black and Gray Markets
Rent control’s artificial restrictions on mutually agreed upon exchanges also lead to evasion attempts, such as under-the-table payments, agreements to renovate apartments or upgrade appliances at private expense, personal connections, etc. Not only do these alternative forms of competition favor higher income renters, rather than “the poor” (who populate rent control rhetoric but far less of the housing available under it), they lead to rent control boards to stymie such attempts. That enforcement, as well as the costs landlords must bear both to defend themselves and comply with its edicts, consumes a great deal of resources that could have been put to productive uses.
Despite such an overwhelming case for rent control being bad economics, why has it not been equally politically unattractive? The essential reason is that in cities where rent control is imposed, existing local renters, who are the recipients of the value taken from landlords, form a political majority who approve of that theft, vote for it, and go to great lengths to rationalize and defend it as part of “the wonders of democracy.”
Rent control offers current tenants perhaps the greatest economic returns of any policy they could use their majority power to enact. Not only do they save what can far exceed $1,000 a month compared to what market prices would be, they are also awarded what amounts to life tenure. If you saved $1,000 a month and stayed 10 years, that would be $120,000, while staying 21 years would generate over a quarter million dollars in benefits. And many long-term tenants have saved themselves far more. What other political act offers local renters so great an economic benefit in exchange for their votes?
Rent control’s “pro renter” rhetoric also allows a powerful form of misrepresentation. Rent control benefits current renters, but it does not benefit renters overall. It harms all renters and potential renters who aren’t already in rent-controlled units. It harms all those who seek to rent apartments after rent control is imposed, mainly finding “no vacancy” signs instead. But they don’t get a vote in the communities to which they"d like to move. Even though those who are eventually successful in finding a controlled unit have been harmed, once there, they don’t want their finally-achieved good deal halted. Rent control also harms renters in surrounding communities, as the restricted supply of available units raises rents there, as well. But they don’t get a vote, either. Rent controls also harm those who rent houses, which are usually exempt, because rent control’s reduction in housing availability leads those rents to be bid up as well.
Rent control also involves unusual characteristics that weakens and divides opposition.
The Long-term Effects of Rent Control
Because housing is durable, there is an unusually sharp dichotomy between short-run and long-run effects. The short-term effect of imposing rent controls on the available supply of rental units is quite small. Proponents can focus only on the immediate effects to argue that objections are unsubstantiated. However, the cumulative effect of ongoing rent control is very large, leading many economists over the years to recognize its ability to decimate the supply of urban housing.
Property owners, who might be expected to be unified in opposition to the threat to property rights rent control poses, are also subject to divide and conquer techniques.
Not only are rental housing owners far outnumbered by current tenants, many of them live outside the jurisdiction considering rent control, undermining their voice. And if they raise money for an opposition campaign, their efforts against the harm that would be imposed on them can be easily demonized as proof of how much they rip off tenants whenever they are given a chance.
Some Property Owners Benefit
Property owners are also split in other ways. Owners in neighboring areas, who would otherwise tend to side with those in the jurisdiction considering rent control, due to the similar threat posed against them, can be bribed away because the reduction of housing supply “next door” increases their demand and raises their rents. Owners of commercial property, who are usually exempt from rent control, can benefit from higher rents for their properties due to the influx of higher income residents rent control brings. The restriction in supply of rental units in an area also raises the price of owner-occupied homes, undermining their support against rent control.
Rent control can give current tenants massive windfalls taken from owners by their dominant majority vote. That also means politicians who cater to that politically dominant majority can more easily acquire and maintain power. The fact that current tenants benefit at the expense of those in nearby areas and all other future prospective tenants can be masked by pretending current tenants interests are the same as all actual and prospective tenants. Rent control also splits owner opposition to the threat of expropriation by exempting commercial uses and houses in the jurisdiction by increasing the value of their properties, as does the spillover gains they capture from the reduced supply of rental housing nearby. That combination goes a long way to explain why, in majority renter areas, the truly bad economics of rent control frequently translates into “good” 50%-plus-one piracy politics.
“The record of history is absolutely crystal clear. There is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.” - Milton Friedman
Whether one thinks of a market as barter, a grocery store, internet commerce or the New York Stock Exchange, the concepts behind each of them are identical. In all of these marketplaces, people have resources which they are willing to give up in order to gain something else they deem as more valuable.
If I own a coop full of chickens that produces two dozen eggs every week, then I am not likely to pay for eggs in the grocery store. More likely, a grocer may be willing to buy my eggs for re-sale to his customers. If my portfolio is over-weighted with technology stocks, then I am less likely to seek new technology stocks to own. If I need money to pay for my daughter’s college tuition, then I may need to work harder and/or sell some of my assets in order to meet the obligation. This simple set of examples is intended to reflect the decision-making human beings face when considering resource allocation. In the 720 Global philosophy statement we put it this way:
Human beings have desires and those desires drive decision-making. Given the desire and the means or ability to fulfill those desires, they will do so. This results in demand.
At the same time, in order to fulfill one’s desires, human beings will undertake activities that give them the means to fulfill their desires. This results in supply.
When human beings interact in a manner that allows their desires and their means to intersect, markets are created.
To emphasize the important linkage between resource allocation, economic success and the role of markets, a basic review of the terms scarcity and prosperity is important:
Scarcity is defined as a deficiency in quantity or number compared with demand. It is a universal, natural condition whereby resources such as time, labor and material wealth are limited. In a world where desires are, by nature, unlimited, people are required to make prudent decisions about the use of limited resources.
Prosperity is defined as the condition of being successful or thriving; economic well-being. It is a manufactured condition whereby the economic well-being of a person, community or nation is determined by the millions of choices citizens and government leaders make every day. Prudent decisions regarding the use of our limited resources produce prosperity.
In the opening quote, the free enterprise system to which Milton Friedman refers is the system whereby people are free to engage in a vocation of their choice as a means of fulfilling their desires by producing something others need or want. Economic value, the basis for free market exchange, is subjective. What has great value to one person may be of little value to another. Because anything a person could desire is to one degree or another scarce, each of us must prioritize our values by our individual preferences and means. This not only applies to purchases and consumption but, just as important, how much we produce and how we spend our time.
When people are freely allowed to come together and cooperate in pursuit of their own self-interests, everyone benefits. The fewer needless restrictions imposed on a society, the more the individuals in that society are incentivized to innovate and produce as a means of satisfying their desires. This is how human beings deal with scarcity. Given our infinite desires and the natural limitations of time, energy and capital, markets determine how we navigate these exchanges.
From Scarcity to Plenty
According to Adam Smith, “If men work together and cooperate, they can combine their land, labor and capital to greatly multiply their ability to produce even greater and more complex things.”
Although evident in many ways, the power of Adam Smith’s observation is highly apparent in the technology and innovation that drove the industrial revolution and mass production. The impact of mass production is seen not only in the technology and specialization of tasks, but also in its effect on prices. When goods are mass produced, the increased quantity of goods and lower costs of production drive down prices, which in turn makes them affordable to even more people. Increasing productive capacity and deflating the cost of production is one of the primary reasons that western civilization so successfully fought scarcity and experienced prosperity.
Law and Liberty
In contemplating how markets allow humans to meet their most basic needs and desires, it is important to discern the mechanisms that have allowed the United States and western civilization in general to be so prosperous. Some nations deprived of resources are prosperous, while others, rich in resources, suffer from acute scarcity. Therefore, one must look to the degree of freedom in markets to determine why scarcity is more problematic in some countries and societies than others.
Law and liberty set the context for how markets function. The United States is a republic that operates under the rule of law. The rights and laws as originally established by the Declaration of Independence and U.S. Constitution are the principles of right and wrong by which citizens and the government must abide. Among these, and vital to the engine of wealth creation, is the right to private ownership of property. Through this, a citizen owns what he or she produces or what they are paid by an employer for their production. As originally constructed and put forth in the founding documents, Americans are protected against unwanted intrusions. Simply put, one cannot take what is rightfully owned by another. In all of the aforementioned documents it is established that the government’s primary purpose is the defense of those rights. Those documents make it perfectly clear that the unalienable rights bestowed upon all citizens are primarily intended as protections against governmental abuse.
The rights and protections decreed are not just about right and wrong, as they thoughtfully serve as the bedrock for efficient markets and importantly engender the incentives that drive productive work in America. The ability to fulfill desires in a vocation of one’s choosing inspires individuals to work, save, invest and consume. In a word, it is the path to contentment. These incentives compel men and women to deliver goods and services as efficiently as possible. An individual’s productive effort not only renders the resources by which one can meet their own needs and desires, but taken in aggregate, it propels the wealth of the entire populace.
Interestingly, despite simple logic, modern central bankers try to convince the world that deflation is evil. They preach that they must intervene to stoke inflation at all cost for the good of society. The truth of the matter is that deflation is a beneficial by-product of innovation and productivity gains. Said differently, the incentives that inspire work and creative ingenuity produce prosperity and work against scarcity.
Productive deflation, which reduces scarcity as described above, benefits a society. It especially benefits those at the bottom of the economic ladder as the issue of scarcity is a more profound problem for those with less. So why does modern society give central bankers the benefit of the doubt when they undertake such measures as debauching the currency in efforts to incite inflation?
Summary
The prosperity of a nation and its people comes about through the availability of goods and services to more people. Free markets, upheld by the rule of law, incentivize people to be productive through work and acquire the means to fulfill their desires. It is in this elegant yet simple virtuous cycle that productivity growth, prosperity and contentment flourishes and scarcity diminishes. The benefits do not solely accrue to those most motivated, the wealthy or those politically well-connected, but to everyone in society.
Most local grocers and butchers have been replaced by the likes of Costco and Amazon. The days of trading shares of individual companies has morphed into trading esoteric derivatives, ETFs, and a host of complex products. These intricacies are signs of innovation within maturing markets. The issue with which we must concern ourselves is the friction introduced to markets, not the market’s degree of complexity. When unnecessarily intrusive policies, laws, and regulations restrict our ability to be productive, incentives are diminished. Without proper incentives, productivity falters and the wealth and prosperity of a nation suffers.
As Milton Friedman said, “the record of history is absolutely crystal clear”. A free market, capitalist system, despite all its imperfections, when properly protected by government as required by the founding documents, produces prosperity that benefits all of society.
Many details about an apartment can impact monthly rent, other than the amount of space and location. For example, units that seem similar could be priced differently if one has a balcony. This price differential could be even greater in newer luxury apartments which offer things like concierge service, furnished rooftops, and fitness centers.
So what kinds of features could increase your rent? And by how much? Using thousands of apartment listings across major US cities with details including, monthly rent, number of bedrooms and bathrooms, and the presence of different amenities, we attempt to find out using data from Priceonomics customer RentHop, an apartment listing site.
We identified 10 features across the 10 largest metropolitan areas to investigate. These included:
Is the apartment furnished?
Does it allow pets?
Does it have a washer and dryer in the unit?
Does it have a common laundry room in the building?
Does it have a private outdoor space (i.e. balcony)?
Does it have a common outdoor space (i.e. shared rooftop)?
Is there a doorman?
Is there an elevator?
Is a designated parking spot included with rent?
Is there a fitness center?
Ultimately, we found that as expected, the number of bedrooms and bathrooms (highly correlated with square footage) are the biggest drivers of price. The amenities that were most associated with higher rent were having an elevator, having doorman, parking included and laundry in the unit, with each city having some variation.
Also in a rough model, designed to isolate the impact of each factor on price in NYC apartments, we found that having a doorman was the most important and increased monthly rent by about $260. The next most expensive feature was having an elevator, which increased costs by about $120.
The major drivers of rental pricing
In starting our analysis, we wanted to understand the differences in price by location. Grouping the over 450,000 records into cities, we calculated median price for each.
From this we can see that the most expensive city is New York, followed by the Boston area (which includes Cambridge). The least expensive city was Houston, which was cheaper by several hundred dollars.
It is important to recognize that not all apartments are easily comparable. A studio, one bedroom and two bedroom apartment are all very different, and this could impact our median price calculation. To account for this difference, we broke out our city view to compare median price by number of bedrooms.
The top three most expensive cities remain the same across all categories, but on the other end of the spectrum there are some differences. While Atlanta, Houston, and Dallas has similar one-bedroom pricing, Dallas has a higher pricing for two bedrooms.
Our goal was to understand which of these factors were most related to price. It’s important to note that we did not have access to some relevant information, such as square footage, but our model is able to account somewhat for size differences using other parameters.
To start our exploration, we calculated correlation between each feature and higher monthly rent. A strong positive relationship would suggest the two are connected – and thus a specific feature may be more likely to increase your rent.
Rather than present raw numbers, we’ve color coded the results. A darker green indicates a stronger correlation with higher monthly rent.
Doorman, elevator, fitness center, laundry in unit, and parking are most correlated with price. Each market has a unique mix of what factors matter most. New York in particular has several important features including pets and fitness center as well as those mentioned previously.
It is important to call out that these factors are only more or less influential in relative terms. In absolute terms, the correlation coefficients are small and suggest only a slight relationship with higher prices.
Closer Look at New York City
To understand each factor in more detail we zoomed in on New York City, which offered the largest and most diverse set of data. We analyzed the correlation between higher price and features at a neighborhood level (focusing on the 50 neighborhoods with the most records). Understanding the neighborhoods helped us build a model for the city overall. For this analysis we focused on listings with 2 or fewer bedrooms.
Each part of New York is distinct and features can have different degrees of importance. To test this, we plotted the results of the top 10 most expensive neighborhoods to find out what was most important for higher priced apartments.
Across the board, there is a strong correlation between laundry in the unit as well as presence of a doorman on cost. Other important features appear to be allowing pets and having a fitness center.
Similarly, looking at the 10 least expensive neighborhoods, we isolated the most important features. This also provided us the benefit of comparing which are important across the range of different neighborhoods.
The same main features are important, but the degree of correlation is slightly different. Having a doorman is also a major feature but, laundry in unit is slightly less important. Relative to the more expensive locations, a fitness center is more important, while allowing pets is not correlated at all in most neighborhoods.
Finally, we created a linear regression model to predict the impact of each feature on price. From the coefficients of the linear regression equation, we can see about how much the feature impacted price. The results of the previous correlation exploration helped us to identify which features to include in our model and through a comparison of many different models, we identified the one which best predicted rent from the presence of features.
In the end, we had 9 variables in our model: 1) number of bedrooms, 2) number of bathrooms, 3) allowing pets, 4) laundry in the unit, 5) having a doorman, 6) having an elevator, 7) having a fitness center, 8) having a parking garage, and 9) a factor indicating how expensive the neighborhood is generally.
Controlling for the number of bedrooms and bathrooms, having a doorman has the greatest impact on price at about $260. This may seem like a large amount for just a doorman, but it makes sense as it is a good indicator that the building overall will be very nice and is likely in a more expensive neighborhood. The same goes for having an elevator and fitness center, which contributes roughly $120 and $90 to price, respectively. Finally having a washer and dryer inside the unit is also a major benefit. If you think you’ll spend more in $80 in quarters at the laundromat in a typical month, finding an apartment with a washer dryer may be cost effective for you.
You may have noticed there are many features that are not in our model. The other factors may have been correlated with price, but they did not have enough predictive power to improve the model beyond these four. Also as we stated earlier, this is not a perfect model. There is still a large degree of variation that our variables cannot explain. These numbers should only be regarded as a rough estimate and a way to compare relatively which matter most.
In the end, your price will be significantly impacted by what city you’re looking in as well as the size and location. Still, certain features do have some impact on costs and it’s important to keep these in mind when making comparisons. Being aware of the differences between listings (and how much they are worth) will help you make smarter decisions about renting.
