In Albuquerque, we are over 15,000 housing units short of the recommended housing supply needed, as quantified by The Urban Land Institute. Currently, there is less than one month’s supply of homes on the market for sale. Apartment inventory for sale is at an all-time low, and occupancy is the highest rate it has been in many years at 96% as shown by COSTAR.
Usually, we would see plenty of new housing being built. But we have a major impact on construction due to COVID-19, affecting labor and creating a shortage. Consequently, we are seeing higher lumber prices, a 40% increase over the past year, going from $600 per thousand board feet to over $1,000/TBF. Furthermore, we will see over a 20% increase in housing costs, driving average housing prices to nearly $300,000, making it more difficult for first-time home buyers, potentially denying them the opportunity altogether. Rental rates will also rise, resulting in renting a 1,000 square-foot 2-bedroom apartment at $1,500 a month, requiring an income qualification of $58,000 per year.
This has become the perfect storm – limited supply, rising costs and a pandemic keeping people in place. All this is happening, and we have tenants unable or unwilling to pay rent. Undoubtedly, people have lost jobs, gotten sick and have children at home being home-schooled. They are out of options. (But others) have not read or do not understand the CDC’s ruling prohibiting evictions, thinking they do not have to pay rent when they are able to, as their pensions or incomes have not been affected.
Owners are in a vise, tenants are not paying, and operational costs are high. In addition to tax costs and utilities going up, owners are faced with trying to make repairs with less or no income. Rental assistance is mired in red tape as tenants are not able to qualify, or write off getting assistance altogether due to the cumbersome paperwork requirements. Owners are unable to liquidate or refinance due to large rental balances and affected income. It has been estimated there is over $40 billion and growing in outstanding rents. Locally, our company has an 8% delinquency rate equivalent to $300,000-plus in unpaid rents.
The effects are already being felt by owners and residents alike – and now an onslaught of legislation assaulting real estate. All proposed bills are well-intentioned, but the unintended consequences will further cripple the real estate market by limiting supply and affecting the inflow of capital.
Here are what is proposed. Full bills can be found on the state’s legislative website, www.nmlegis.gov:
⋄ HB 19 – Real Estate Transfer Act,
⋄ SB 333 – Foreclosure and Housing Study
⋄ SB 338 – Domestic Violence Victim Release from Lease
⋄ SB 349 – Mortgage Relief Act
⋄ HB 291 – Adding New Brackets to the Income Tax
⋄ HB 111 – Housing Discrimination
There is a whole range of proposed legislation affecting real estate without any orchestrated approach. The affect will be catastrophic – increasing taxes, facilitating the removal of tenants while leaving owners worried that the removal could affect the standing rental contract, and a housing discrimination bill that affects all owners. HB 111 dissipates an owner’s right to decide who they want to rent to. Removal may be considered discriminatory in some cases.
Arguments are made that owners just evict tenants. Eviction costs two to three times the monthly rent when considering lost rent, unit repairs and leasing costs. On a four-plex this could be 25% of a building’s revenue for the year. Eviction is the owner’s last resort.
This perfect storm will result in less housing, not more, exacerbating the homelessness issue. We currently have over 2,000 homeless waiting for housing. Putting limits on collections and removal for non-conformity and non-payment will force owners to increase requirements so only those with better credit scores will qualify for housing. Unintended consequences will affect all New Mexicans. Read the bills and contact your representatives to express your concerns.