What Average People Can Learn From Real Estate Showcases

Activists will never listen to real estate companies’ earnings conference calls or read the presentations they send to potential investors.

A cynic would say he doesn’t want the truth to get in the way of a good story.

I’ll be honest, if they looked at it more closely, some people might realize that real estate companies and the economy as a whole don’t work the way they imagine.

An X-listed person, making an absurd argument against building a 244-unit apartment building on a large commercial site in Park Slope/Windsor Terrace, tweeted, “Increased supply of housing on the open market has no direct correlation to reduced rental costs in nearby apartments.”

He needs to get back to the real world, where the law of supply and demand is an ironclad truth. It’s like gravity.

Unfortunately, skeptics can’t test the law the way they can test gravity by stepping off the edge. All we can do is lead the horses into the water by presenting logic and evidence. Pitch decks, for example.

Real estate people trying to raise money don’t waste time educating serious investors about basic economics. They get right to the point, emphasizing when competition is limited. The implication is clear: renters and buyers are having to pay more for their apartments, hotels, warehouses—whatever the company sells or rents.

Let’s take a look at the investor presentation that GFI Capital Resources Group released this month to raise capital in Tel Aviv for its hospitality businesses.

“New York City is experiencing a slowdown in new hotel construction,” GFI explains on page 12. It attributes this to three factors:

• A law passed in 2021 would require any hotel project to first obtain a special permit, “limiting supply for at least the next 5 to 7 years.” (In fact, it will limit supply forever unless the law is changed or the hotel workers’ union goes under.)
• Short-term rental regulations that went into effect a year ago have reduced the number of units available on Airbnb and other short-term rental platforms from 23,000 to just 3,000.
• Some 16,000 hotel rooms have been converted into housing for migrants and homeless people, most of whom “are to be permanently removed from the market.” (That is, the rooms will be removed, not the migrants and homeless people.)

GFI acknowledged that interest rates are a headwind but predicted that “rates will fall much faster than the money supply in New York can expand.”

According to GFI, only 1,127 hotel rooms are in the planning stages for the entire city. Even if all of them were built, it would increase the city’s total number of rooms by less than 1 percent. That means hotel values ​​and room rates will remain high as long as demand is there.

The city’s rental vacancy rate is also 1 percent. Anyone who denies that adding more housing would increase the vacancy rate, making finding a home easier and cheaper than it otherwise would be, is being frivolous, delusional, or disingenuous.

Interestingly, some advocates point to higher vacancy rates in more expensive apartments as evidence that more is not needed. They seem unable to grasp that some vacancy is necessary for a healthy housing market. The bad thing is too much or too little.

A few politicians have had the courage to change their minds on housing — state Sen. Jabari Brisport and City Councilmember Erik Bottcher come to mind — but most elected officials change their views only when they think it will help them win the next election.

But it’s better than activists who never change their views. That’s partly how people are designed; check out the confirmation bias. Plus, they like the dopamine rush they get from hating people who make money providing housing. (Landlords get a similar rush from hating socialists.)

One serial Twitter user even insisted that filtering—people moving into new apartments, thereby freeing up cheaper units—never happens in New York. Yet this well-established chain reaction is clearly visible in property records.

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Another person who tweeted me about this eventually asked, “Why do you care what I think of you?” Indeed, I often wonder why I engage in discussions with people who seem to have an opinion.

The reason is that it will be difficult to solve the housing crisis unless renters, who make up two-thirds of the city’s population, join the fight for more housing supply — or, worse, side with those who benefit most from the shortage: landlords.