On Sept 29th, 500 to 600 industry professionals waited with baited breath to hear what the WAO was going to tell them about the upcoming economic year. I was one of those professionals in attendance at the Washington Multi Family Housing Association's "Washington Apartment Outlook" event. 2009 has been a rough year for everyone, not just people in our industry, and I think everyone in that room wanted to hear good news. We've been seeing news reports that the "economic crisis" is on the rebound, that our economy is turning around and that it's all going to be mom, baseball and apple pie in America again. I think we all wanted to believe that it's going to be sunshine and puppies from here on out. We went for confirmation and confidence in our optimism.
It didn't come.
I have to hand it to the speakers yesterday. They faced a tough room of people who wanted them to say one thing, and they were strong enough to tell the truth: It's not going to be as bad, but we are not out of the woods yet.
Rob McKenna, the Attorney General of the State of Washington, spoke to the truth of how we got in the mess in the first place. If you've never seen McKenna speak, I would encourage you to do so. He's a very captivating speaker and he puts the complexities of the economic mess in a verbal flowchart that is incredibly easy to follow. Some of the tidbits that he tossed out were things I wasn't even aware of, such as that huge push to own housing nationwide and all the money that was invested in to it yielded only a 4% growth in home ownership. Any marketer worth their salt would spit on that ROI. He talked about how Freddy Mac and Fanny Mae spent over 100 million dollars on campaign contributions in 2005, and that money was spread to EACH party. Rob also discussed the personal responsibility angle as well, citing the massive growth in credit debt as well as the changes to the home buying process. 20% down payment was keeping us out of a lot of trouble for many years, and once that went out the window, it was pretty much a free for all. McKenna stressed the importance of learning from the errors we've made so that we don't repeat them, and capped his portion of the program by answering audience questions.
WMFHA Lobbyist Kathryn Hedrick gave the government affairs update to the crowd. She talked about some of the new proposed laws that were potentially coming down the pipe, such as a law mandating inspections and requiring a landlord to give a 30 day notice to vacate. She and Joe Puckett, head of the GA Committee, also spoke about a proposed legal requirement for all rental properties to accept Section 8 vouchers, citing that WMFHA wasn't opposed to Section 8, but to the government mandate that they accept them from a program that isn't well funded or outlined. Currently, within the city limits of Seattle, Section 8 is a protected class under the city's fair housing statues. The committee then recognized Washington State Senator and Majority Whip Chris Marr (D-Spokane) as the WMFHA Legislator of the Year, having helped defeat the proposal for a 60 day notice to vacate law.
Matthew Gardner started out his portion of the program by discussing what is currently driving our gross domestic product, or GDP. He showed that in the last 10 years, we have failed to create new jobs in America, which is a good portion of why we're in this mess. Coining the phrase, "Clunker-nomics," Gardner discussed how cash for clunkers did work, and we can expect to see it as a trend in the future. Kim Lee of Community Northwest tweets, "Does Clunkernomics work? #wao my opinion? Only for a short time, and it encourages people to buy things before they are financially ready." (To see the rest of the twitter feed from the WAO yesterday, search for hashtag #wao or click here.) The concern is that it was all paid for by the government, so once the funding runs out, it's anyone's guess as to whether or not it will continue to work. Another considerable concern is that over the last decade, as a country we have failed to create any new jobs. We lost 54,000 jobs in the PNW , but Gardner did elude that we should be one of the first areas to start to recover those job losses, likely in the first or second quarter of next year. He pointed out that in the Seattle area, people aren't transient, and have been more likely to hunker down and ride out the bad economy. The big question out there, as Gardner put it, is whether or not the consumer will start to consume again or if we've had a fundamental shift in our behavior away from buying the next shiny thing that comes along. One of my favorite quotes from the afternoon came from Gardner when he said, "Historically, when 65% of Americans own their own homes and 35% rent, all is right with the world." When asked, Gardner said that in his estimation, the single family housing market has bottomed out, but that we can still expect to see the condo market drop another 20%.Bringing his session to a boil down point, Gardner said that the economic year for 2010 will be an improvement from 2009.
Mike Scott of Dupre & Scott discussed a lot of the trends he's seeing in the Seattle-Tacoma market currently, such as people offering less concessions and more just dropping their rents to a market rate. He revealed that currently the market vacancy rate is sitting at about 7.2% in our area with an overall gross rate at 8.5%, and projected that we will see a 9% vacancy rate with a 10% gross rate in the next two quarters. Scott discussed the great opportunities that will be out there for PNW apartments in the coming years, such as the boon that a rising interest rate will bring us as well as the chance that between now and 2014, we should be able to capture almost 30 THOUSAND new Gen Y renters. And they will be renters, as Gen Y isn't leaning towards buying the way that Gen X did. Even with the great opportunities, Scott reports that we can still probably expect to see an 8% drop in rents in the PNW over the next two years, and that it will take us almost 5 years to get rents back to where they are currently. 2009 brought the lowest apartment sales volume year in 30 years, and 2011 will be the lowest apartment production year in 30 years. In the calendar year of 2009, 6,000 units have come/are expected to come online in the PNW, which has seriously flooded the market and, along with the almost 70 thousand job losses, has led to the projected drop in rates. We will see a reprieve in 2011, with only 500 units new units projected at this time, so, like Gardner, Scott advised that it's time to hunker down and focus on resident retention. Scott discussed how the nation can come out of this, but as a nation we have be more aggressive about not only attracting new jobs, but retaining those jobs within our country's boundaries. He also pointed out that while it's not all roses and wine out there, "A slow recovery is better than being in a tailspin."
The Q&A session with these two economists clarified many points, but the overwhelming advice given was:
- Figure out what sets you apart from the community down the street.
- Do your best to get by right now and live to fight another day
- It's time to focus on resident retention
- Talk to your renter and find out what it is that they want/are looking for. Do your best to make your product meet those needs.
If you missed this year's WAO, keep your ears open for next year's ticket sales. This event is known to sell out within just a weekof opening tickets, and though they added another 300 seats this year, you can't guarantee yourself a seat without being on the ball, so get yourself on WMFHA's mailing list by contacting Tara Hooper at firstname.lastname@example.org, or become a fan of the Washington Multi Family Housing Association on Facebook, so that you're ready to be in the know for this and all the other great events coming up in the next year!