Hello, and welcome to another episode of The Odd Lads Podcast.
I'm Joe Wasental and I'm Tracy Allaway.
Tracy, Uh, let's do another housing episode?
Why not? Let's do it?
No, you know, I think I've said it before to you. I don't know if I've said it like on the show. One thing I like about housing episodes is like, no matter what, it is, just like this permanent source of anxiety for everyone.
Everyone has an opinion on it.
Yeah, and where everyone was born short housing, you know, they need to cover their housing short at some point. And if you have, you know, if you don't have a house, you're anxious about rent and house prices going up. If you have a house that you own, you might be anxious about it going down, et cetera. Like there's just there will never be an era of any market in which I don't think like some people are like anxious about housing in.
One way or another.
Well, okay, so housing is a perennial source of interest for sure. But I also so I think we're kind of in this unusual moment for housing as well, because no one, as we've discussed on multiple episodes, at this point, no one is quite sure what's going to happen to the market. And there's been this discussion of perpetual supply shortages of housing, but at the same time there's this discussion of as interest rates go up, whether or not we're going to start to see an impact on prices.
It just feels like there's a lot of uncertainty at the moment, combined with these sort of long term structural issues.
Totally, and it feels like there's something you said, structural, and it feels like one particular structural flaw.
In sort of the way we do.
Housing development in this country, which is that you know and we see it right now, which is that you know, the FED has been trying to fight inflation, cool things down. A big source of inflation over the last few years have been rent prices. So you want to get down rent so you raise interest rates and hopefully that cool
things down, and maybe that works, maybe it doesn't. But one effect that seems to have is it seems to impair the supply side as well, right, and then you like, okay, maybe in the short run cool things down and rents go down a little bit, but you actually set yourself back. It would seem in the long term goal of having affordable housing abundance.
Yes, so, I remember Jerome Powell specifically said that they wanted to bring house prices down. Well, I don't know if he explicitly said that, but you know, something along those lines. They wanted to impact the housing market, bring prices down in order to bring inflation down, which makes a lot of sense. But on the other hand, people want affordable housing for obvious reasons, and if you're sort of crushing that market, you can imagine a lot of people are going to be upset.
Right.
There was a question to Powell. It was sometime early this year, maybe last year. I think it must have been last year, and someone's like, oh, what would you say to someone who wants to buy a house and they see mortgage rates shooting up? And he's like, well, yeah, it's tough, but then we'll cool things down and then
things will be better. But all that's really happened is prices are still really high, supply is impaired, rates are up, so housing affordability is basically the worst level in like five decades.
Yes, maybe ever so, no.
I think on record, According to Jim Egan over at Morgan Stanley.
Yeah, yeah, I think you're right, And so then the questions like, what are we doing here?
Do we need a.
Different model of housing development beyond what we have in the country right now where we have like developers and home builders sort of fluctuating how much they build based on various markets.
Well, absolutely, and I think historically there have been sort of two dominant ways of tackling the affordability problem in the US housing market. And it's either we build more houses more supply, which, as you just pointed out, can be difficult in the current interest rate environment. And even if we do build more housing, because developers are a savvy bunch, they tend to build more expensive houses for people who are going to pay a higher price so
that developers can make more money. And then the other way we tend to deal with affordability is I think through voucher programs like Section eight and maybe building public housing to some extent. But as you point out, there is a third way.
There's a third way.
There may even be a fourth or fifth way, but let's at least talk about a third wave. So I am excited. We have two guests today who are have been working for a while, and think about are the other models for housing development beyond the two that Tracy just laid out. I'm very excited we're going to be speaking with Zach Marx. He is the chief real estate officer at the Housing Opportunities Commission Montgomery County, Maryland, as
well as Paul Williams. He's the executive director for the Center for Public Enterprise who's also working on these issues alongside Zach. A little bit of a personal disclosure that I have to get out off the bat right at the beginning of the episode.
Paul and I are friends. We play music together.
Oh, I thought you guys were joking. I didn't realize you were actually in a bandage. So you are actually a member of Light Sweet Crewed.
Yeah.
Yeah, Paul plays I write songs and play guitar together. So if you want to just ignore this entire episode because you've perceived there to be a glaring conflict of interest, you're welcome to turn off the episode right now.
Paul, do you know I've been forced to buy tickets for your upcoming show? Joe won't calp me. I had to buy them.
That's fantastic, it's good for the economy.
It hurts snow walk exactly Zach and Paul, Thank you guys both for coming on the podcast.
Thanks for having me.
What do we start with you?
Zach, you've been working in this area. What does the Chief real estate Officer at the Housing Opportunities Commission of Montgomery County, Maryland do? Or if you just want to say, what is the Housing Opportunities Commission do?
That's fine too.
Yeah, you know, fancy name for really the Housing Authority for Montgomery County, so fairly typical governmental entity. We also happen to be the Housing Finance Agency, which is a lot less typical. Typically those are two separate governmental unities and these are both combined and contained under the HOC shingle.
If you will.
And so for a bunch of decades, HOC has been providing affordable how housing in different ways. It started as a pure play public housing authority, so just building public housing in the seventies, but over those decades, because of where it's located, and you know, we can sort of get into some of those drivers if you wish, but because of where it was located, the combination of the Housing Authority and Housing Finance Agency, it has sort of
continually innovated around how to deliver affordable housing. And they've basically developed a large portfolio of real estate assets, which many public housing authorities across the country kind of own public housing.
And that's it, hoc ouns.
I think we're somewhere in the vicinity of ninety four hundred units, and it happens to be that Montgomery County real estate is very valuable, and so my job is really to figure out how to further expand that portfolio through acquisition, through new development, and to also make sure that the existing portfolio is continually reinvested in and maximized for its potential.
I'm going to start with an even more basic question, potentially, but what is it that Montgomery County is actually doing that is different to the way we've traditionally dealt with housing affordability issues.
Yeah, so Montgomery County has answered that question kind of a few times, and then the things that it's done have become more standard practice. It started as I think arguably the first to implement inclusionary zoning several decades ago, so that was a that was an inflection point of innovation. They also were among the first to begin to use
a condominium regime. This starts to get super technical, but a condominium regime in the way in which li tech low income housing tax Credit equity could be used to finance mixed income buildings.
What's the word you said, condominium regime.
Condominium regime, Yeah, okay.
So, typically, the Low Income Housing Tax Credit Program, which is the standard way in which affordable housing is produced in this country at this point, generally speaking, because of the rules and the structure of the program, will generally force a building that's somewhere between eighty percent and one hundred percent affordable. And what HSC did was it began to basically develop mixed income buildings where the majority of
the units in the building were market rate. It would basically form a condominium for the market rate units and condominium for the low income Housing Tax Credit units and effectively execute two transactions even though they're you know, they're
effectively in the same building. And so that was a really important innovation because it was a way in which to deliver hsc's what's become hsc's mixed income model, where you have this affordability being delivered in what are otherwise Class A plus majority market rate socioeconomically mixed buildings.
So let me make sure that I've got this straight. So historically, the government either built public housing or they encouraged private developers to build housing, a portion of which would then be dedicated to lower income households. But what Montgomery County is doing is somewhat different in that their finance saying sort of a mix of private income and lower income residences.
Is that right?
Yeah, it's really the taking an ownership position in a building that has market rate ents is not something that's widely practiced, and so it's really taking the position that we should also really be a majority or outright owner of these assets. That's really kind of what's the core of what they did and what was at the core of this latest I guess innovation that we're I think here to talk about.
So Paul, let me bring you in here.
So, in addition to your music, you're also the executive director for the Center for Public Enterprise. Tell us from your perspective what it is about the work being done at Montgomery County that feels different to you and your work and sort of spreading the gospel to other public authorities that could do something similar.
Yeah, the core way I look at the kind of innovative programs that HC has come up with is that currently all affordable housing that gets built in the United States is funded with either the Lonecome Housing Tax Credit or Section eight vouchers. That's it, and in basically every state in the country, every jurisdiction in the country, those
programs are fully oversubscribed. Every dollar that Congress appropriates gets used to build that housing, and the wait list for you know, eligible households, you know, we have to build at the current level for seventy five years right to
get there. It's not going to happen. So the tool that HOC has come up with is something that allows them to, in addition to using all of those current programs from the federal government, they can self finance and build mixed income properties on top of everything that they're
already doing. So a lot of times in kind of affordable housing policy circles, what happens is, you know, you want to take the same pie of federal subsidies and say, how can we chop it up a little bit differently to make it a little bit better for this person or that person. But this is is just completely separate pie, and the model is essentially just going out and being a participant in the housing market, right and building these mixed income projects because of the tools, access to capital,
statutory authorities that an agency like HOC has. And that's what's kind of new and innovative that not very many people are doing. And so what my organization has been doing on this is essentially take it's a really simple model, right, it's not all that much work to do, not very many complicated financial pieces, and we can get into it,
but it's relatively simple. Take this model to other agencies that are seeing the same kind of housing market constraints and say, this is a pretty simple approach you could be using to expand overall production, affordable production and for really a kind of deminimous upfront investment. All you really need to do is kind of think a little bit differently about how you operate as a public agency. Right, you might want to participate in the market and.
Shape it a little bit more.
Can we talk more about the money aspect of this and the financing arrangements, So you just use the term self financing. It's government agencies, So I guess they can go out and raise money through the bond market and then just loan that to themselves.
Is that the idea, Yeah, I mean that really is generally the idea that I think Paul's right, like, mostly what we're doing is conceptually very simple. It's really just sort of a tweak to how we're employing it. And so to start with, HOC, as the housing finance agency, is able to be a lender to its projects and
has been for a long time. You know, the FHA Risk Share program is a really a standard tool provided by HUD to certain sophisticated housing finance agencies that you know, is for the express purpose of producing affordable housing faster and more efficiently. And so HOC has been for a long time the senior permanent lender sometimes construction lender on its projects, and so that was already a part of the toolkit. And so the next piece is really that
equity piece. Where does that chunk of equity come from, the part that the debt won't cover. And effectively, what we you know, we worked with our local council to do is to use municipal finance as the source of our construction equity, which typically it comes from two places, one below income housing tax credit.
And as as Paul mentioned, that's.
Very limited we're already doing all that basically, or it comes from the private market, and that is a particularly expensive piece of capital.
Can you give us an idea of the difference in the cost of capital between public and private and maybe.
If you could just sort of give us like a I don't know if it's a stylized financial model. I mean, I get the different pieces both, I don't know, So maybe pencil it out in words if it's possible, like what a deal looks like.
So one of these essentially is taking the it's really taking the conventional American private equity real estate model, and it's just pulling it over the private side, so the way in which the public side to the public side, yes to the public side, and so you know, typically the private sector, conventional finance is a private bank loan for the construction debt, and then a huge pile of equity because the bank's typically only giving you somewhere between
fifty to sixty percent of what you need. And then maybe a private developer puts a tiny bit in of their own, often not but maybe a little bit. But for the most part, it's that big thirty five percent chunk that's going to come from all the folks that inhabit the big tall buildings around the one we're in that fund those projects, and really our thought was, really take that model.
Pull it in.
Instead of using that capital, we can use our municipal finance tools to basically lower the cost of that capital substantially. And most importantly from our view, is the put HC in the position as a majority or outright owner of the project, which has all the knock on effects that everybody likes.
And I think to stylize it a little bit more and to give some kind of examples, sure Zach sometimes talks about this project that was built six seven years ago where it was a mixed income project. HOC was involved in the deal, and this was before these new tools, and so so you had a private equity investor who had, you know, wanted double digit returns and wanted to you know,
significant ownership stake and all of that. And that building performed very well, and HOC saw very little of the benefit of that really high performing building that they had put this money in and you know everything, and so they kind of went back to the drawing board. How do I get in a better position in a project like this that I'm building. Right, because I have these social goals. I want to provide these affordable units. I
want to have this long term, permanent affordability. How can I further that goal by being in a better position on the deal. Well, the way to do that is to bring your own source of capital to replace that source of capital that's pushing you into a bad position. Bring your own. And so they created this Housing Production Fund, which is the tool that facilitates this kind of new model of mixed income development. And really what it's doing
is it's making short term construction loans. You know, it's essentially replacing what would be private construction equity in a conventional deal, but you loan it from your fund to yourself to your project at a much lower interest rate, and so you're kind of taking on a little bit more of the risk.
Right.
Why does private equity want really high returns for their investment, Well, because that's what they price the risk at job. Right, it's their job, and that's what they price the risk up. But as the public developer and owner, you're not just like eating that risk, right, you also bring things to the table that lower the risk of the project.
Right.
You're a governmental agency, so a lot of the kind of barriers regulatory things to some kinds of development, you can get past those sometimes in a little bit easier way. And the other really big thing is one of the biggest risks from the construction to kind of permanent operating phase of a building is the lease up period. Once you're done, how long to take you to get people
in that building and pay rent. And when you do a project like this, if you have a third of your building at these affordable levels, HOC has a line out the door of thousands of households who are waiting for affordable Like lease up for affordable units is like the snap of a finger compared to market rate units, and so you're reducing that lease up time risk too. And there's other kind of risk reduction things that you bring to the table.
I take the point about risk reduction and the lease up period and things like that, but my next statement is going to be somewhat facetious, but the pee pricing does seem a little bit ridiculous when housing at this point almost seems like a sure thing, like when do rents ever go down? I have yet experience time, Seriously, I've yet to experience that phenomenon in my lifetime.
You know, I actually saw a Bloomberg chart on Twitter this morning showing market rents going down, deflation in rents in some of the cities that had the highest supply increases over the past.
Not New York City.
Not New York City, right right, I mean Boise Boys rents went down something like five percent.
Yeah, some rents are so the answer has moved to Poise Okay, Wait, I realized there is something I should have asked at the beginning of this conversation. But can you describe the types of housing or building?
Nice?
Yeah, that you're that you're creating a little bit more detail.
So, and this is just historically the way that HC has approached things. We deliver affordable housing through what we call financing solutions, not construction solutions. And so the general ideas you produce and market competitive project. We need it to be market competitive because it's going to have a majority market rate component in it, but also because we want all of our residents to feel like they're living in a building that a lot of them.
Don't even know.
One of the refrains you'll see is that I didn't even know this was owned by hoc. It's a very common experience for our residents, both the residents of our rent restricted units and those in our market rate units. And so these are Class A buildings that are typically built to be competitive with the market. And I would say even in our more recent iterations, we are actually using the HPF platform to actually set some higher standards
in the market around energy efficiency and even scale. So we really try to use the HPF platform for one of our things. But in general these are just as nice as the Class A. It is a Class A rental building. It may be kind of the high dens any garden or four over one where you have you know, four or five floors of wood frame over over a retail or parking podium, but we also do mid and high rise as well.
You mentioned that Montgomery County has sort of a history of housing innovation and is the phenomenon essentially like we all know, like the DC economy has like boomed, but like there aren't a lot of like especially like people working in government, Like they're not like a lot of those people, like they don't become rich, Like the economy is like boomed, but they're not like maybe particularly high salary. So they need somewhere to live in a booming economy,
but they also need to be like somewhere affordable. Is that sort of the general economic condition that has sort of like forced the hand of a county like I mean Montgomery.
Montgomery County's challenge. It's one of the most affluent counties in the country, okay, but it is a It's also one of the most diverse counties, certainly in Maryland and
in the country. And it's a relatively large county, certainly for Maryland, so I guess low bar, but you know, it's got distinct parts of the county and so you have you know, a significant amount of immigration, obviously in the DC area, and so you have you know, first generation families that are looking for, you know, their first affordable home, and they've often looked at Montgomery County schools as that first leg up, you know, into this country. You also have you know, lots of in many cases
progressively minded but boomers who bought there. It's a relatively young county. A nineteen fifty there were a lot of fields and so it really was that expansion that you're talking about of the federal government where you have this wave of boomers who bought homes for you know, fifteen dollars and you know now they're worth you know, one point five million, and then everything between is kind of the range of challenges that we have of housing. And
we have very urban centers. You know, we have taller buildings in Silver Spring and Bethesda and Rockville than there are in DC. So there are very urban locations where you have folks employed within a whole spectrum of different industries. So it's really trying to serve what is an extremely socioeconomically diverse environment and ethnically a diverse, racially diverse and
so forth. And there have been successes and failures around that over the course of the decades, but that has definitely been the trend for Montgomery County over the last or twenty years.
Maybe this is a question for Paul, but how replicable is this model outside of Montgomery County, because as Zach just described, you know, this is a relatively affluent place. I've seen some people make the argument that the county also has an advance because it's a municipality and so it's easier to do this model. I don't quite understand that argument, but maybe you can expound on that, But how easy is it to export this particular way of doing affordable housing to other parts of the US.
Yeah, great question. I think the first thing to ask is does the financing work in other places? And I think the really nice thing about the approach is that really the test is if market rate rental construction pencils in your market, then this works because all you're doing is taking the market rate model, pulling the most expensive piece of capital out of that, putting in your own source of capital, and then all of a sudden you
have more room to provide additional affordability. So if market rate is pencil and then you then you can just you can do this. As far as how do you get other agencies to find a way to do this or to use a tool like this, right there, there's more than one way to use a tool like this. The City of Atlanta recently stood up a program that's essentially they're trying to copy exactly what my Emory County student.
And actually we hosted a kind of event last week in Montgomery County bringing together folks from housing agencies around the country. So you know, we're people out west, people in the South, people in Northeast, people in the Midwest who run agencies who are interested in figuring out how to do this. And you know, no two kind of programs are going to look identical because you know, everybody's kind of institutional environment in different jurisdictions looks a little
bit different. But I think, and Zach talks about this, sometimes there's kind of two main kind of pipelines you can use for you know, how do you get projects in a pipeline for development with a tool like this. There's one where, like you know, you're housing authority, you own a piece of land. You say, you know what, I have this land, I'm going to develop it. I'm gonna's you an RFP. I'm going to find construction manager,
engineered designed me the building. I'm going to you know, hire somebody as a fee developer and build me this thing. You have this other approach, which HOC recently did a project like this where there was a fully entitled project by a private developer that was sitting there on the dirt. Nothing was built because they couldn't get financing to close the deal. It's fully entitled, was ready to go. HOC
came in and said, nice looking entitled project. You got there, how about I come in with my cool new capital. I'm going to come in with property tax relief because I'm a public agency. I'm going to come in and reduce the police up risk. And what you're going to give me is this increase in affordability that I want. And I'm going to be majority owner and private developer with entitled project that can't close on financing. And it's like absolutely, please real quickly.
So there's no property taxes because it's the government developing on government land or government program. How big is that when you talk about like, Okay, we're going to make this pencil out, We're going to expand the supply of affordable housing.
How big of a deal is that.
Property tax component in terms of making things pencil out better.
Definitely a key tool.
It really is what allows us to do so.
As an example of the Housing Production Fund, the Production Fund could still function with just the Housing Production Fund itself around producing the housing without any increased affordability, but it's really the ability to increase the affordability and to deepen the affordability as well, because many of the units
we deliver are actually below our inclusionary zoning standards. So so the property tax abatement is probably something like maybe twenty percent, maybe fifteen to twenty percent of op X of operating expenses. And so it's that relief that feeds into the performer and allows us to go as far as we possibly can with affordability, with you know, with services, and you know, all the other types of things we layer in when we do these projects.
What is your capacity constraint? Like, what is the source of Like in theory, I imagine there's a demand from any more apartments, there's probably still scarcity.
What is the.
Constraint on Hoc's side in terms of building out even more?
I would say the primary constraint, especially as we've entered into this sort of economic environment where where you know, we have twenty projects to choose from that are from.
The private sector that are all great, They're.
All tremendous, and it would add tremendously to the county's housing stock. So I would say there are kind of three key both short and long term constraints for us.
You know one and it's really I think the deepest part of it this discussion is simply building the staffing and the capacity and the competency around being able to manage how do you be a public limited limited partner investor, Like, how do you create the staff you need for that out of both sort of what I call found people, the people that were kind of already there, but also attracting the kinds of practitioners you need to be able to scale up like our council wants us to do,
like the fund is designed for us to do. So there's that's certainly I think really one of the deepest parts of this discussion is is really just that, and then there are other you know, on the financing side. Obviously, our aim is to fully subscribe the revolving fund, so we've largely done that, and so to some extent it's just the size of the fund, and that's fine. That's probably the easiest thing to solve. It's just a budget adjustment. But then the last piece is things that start to
get into things like guarantee capacity. So if we're using a private bank loan and the bank has come to us and said, you know, look, we really trust you guys, we think you're excellent practitioners, but while we're under construction, you know, we need you to guarantee x percent of the loan and across enough deals that starts to be an issue relative to a balance sheet, even as that
balance sheet is growing because of the production. And so it's one of those things that you know, we watch very very carefully to make sure that not only are we thinking about, okay, how do we just finance this deal, but.
We're also very very cautious.
We work with our financial advisor extensively on really keeping an eye on that guarantee capacity and making sure that even from just because we're actually rated by Moodies, to make sure that you know, when Moody's comes in for their annual review, that we're always keeping that in mind so that there are no surprises. We obviously want to keep that capacity in a good place, and there are innovations elsewhere in the country that we definitely did not
do that are good solutions for that. So yeah, it's really a host of things between just plain old people power and then some of the larger implications of taking a governmental energy and really supercharging it.
Well, I'm going to ask a devil's advocate question, which I have a teensy bit of sympathy for as someone who has spent a lot of money on terrible apartments in New York for a long time. But what do you say to people who argue that it's unfair that the government is subsidizing people to be able to live And you know, as you describe it, these are nice buildings with a lot of facilities, and people on low incomes are able to live in places that they otherwise
could not afford. And then related to this, in an ideal world, wouldn't the solution for this just be for companies to pay higher wages so that people could live in nice places well? And then on that note, like why do we have tax pacers who are subsidizing like someone who's earning minimum wage at Walmart so that they can actually live somewhere close to where they're supposed to live.
I think there's a couple of answers to questions like this that you know. One is just kind of a moral answer of is it fair in a society for people to pay seventy percent of their income to rent? Some people have different answers to that question. I have my answer. The other one just done an economic growth
point of view. I think it's important to consider it from the point of view of if you took ten twenty percent of all households in America and double their housing payments overnight, what would that do to consumer demand in America? That'd be very bad for consumer demand and be very bad for growth. It'd be very bad for broad economic growth. I don't think anyone who works in business wants to have a massive reduction in consumer demand
by doubling people's rent payments over night. So I think there's moral reasons, and I think there's I think there's you know, economic reasons why you want to have housing supports for people, you know, and as far as you know, a fairness question, I think a really important way to look at this program is what are we doing to stabilize housing production across the business cycle?
Right?
One of the things that we're seeing now is that when we have a rates environment like we have today, we're just seeing housing not pencil at all. Nobody's being able to close deals. You have you know, entitled land ready to go, and it's just not going to get built even though there's housing demand. And so you know, when I talk to other agencies, what they're telling me is, my god, I have you know, dozens of entitled projects that I would love to see built around.
Mind, what's an entitled project.
It basically means you've gone through all of the archetel to get engineering right, You've gone through all these kind of approvals to get it ready to develop, and you're ready to move. You just need to close on your finance.
Yeah, it's really a development application process. So every place has got.
Some version of it.
But it basically means that you've gotten through what's usually called something like a site plan approval. But it's basically if you go to the permitting agency, they're going to look at it and say, yeah, you've met all the conditions of the legal zoning of the property and you can now build.
But you can't build if you don't have half the capital. And so that's where if you have a program that can scale to many agencies, many places around the country. I mean, obviously one building doesn't have a macro effect, right, but you have every state running a program like this, you maybe have lower dips in housing production kind of across your business cycle.
Yeah.
The idea of smoothing the cycle in a sort of classic Canesian fashion, I guess, is the interesting one for me.
The other interesting pro argument I could see in this is the idea of avoiding enclaves of super rich people, so you get sort of high, middle and low income people all living together, which kind of goes some way to alleviating labor shortage worries, because it feels to me like so much of the labor shortage debate, this idea that oh we can't get waiters or waitresses or maids or cooks or whatever, is actually a housing shortage issue, and this could go some way towards solving it.
Just on the point about building through the cycle, because that was one of the things we discussed in the intro.
Is that true? I mean, in practice.
Has it been your experience that this model is able to do that such that at a time when you're seeing entitled projects not get off the ground, you're not impaired.
It's definitely tougher because again, all we're doing is getting any advantage. You know, we have that capital advantage, but there's obviously you're.
Still impacted by higher rates.
Absolutely we're impacted by higher rates. We have some built in you know, because we're using tax exempt financing.
There are all these.
Sort of different buffers that we have that further help us be this countercyclical agency. But there's no question it's harder. But we're about to close a very large transaction. It'll be our second housing Production Fund deal, and it's had to weather, you know, the entire run up of both costs.
And rates, and it's still going to close.
And having been in the private sector, I can tell you it's you know, it's just not a transaction that would have any prayer of closing in this environment.
So just real quickly, other a lot of projects that you see right now in Montgomery County or Paul, that you see elsewhere that some ground was broken or some plan was set in motion in twenty twenty twenty one that's currently just not being worked on. Is this a huge thing that's unfinished entitled property development?
Yeah, it's much more of like projects that basically are like prepared to pull building permits and start but can't get that financing. And we've seen that, you know, even six months ago, I was probably looking at maybe six to ten they have been presented and now it's it's got to be twenty to thirty.
Wow.
And I was talking to some folks in Massachusetts at one of their agencies who you're very interested and deploying a two like this who telling me dozens of entitled properties in the Boston metro area that seem like they're not going to move right now.
Tracy. I think we have for the episodes to do.
Of course on.
Uncompleted housing that people desperately want, but that because of our attempt to fight inflation, housing is being kept scarce around the country. I think much more, much more to be done on that topic.
This is the ultimate irony of fighting, you know, supply lad inflation with higher interest rates.
Zach and Paul, thank you so much for coming on up.
You're really happy to.
Be here, Tracy.
Actually, that last point about just the surge in noncompletion of developments is pretty alarming. The fact that it's significantly different than it even was six months ago at a time when people are frustrated by rants, at a time when people are frustrated by housing shortage, and the fact that in the last six months planned completions have gotten worse is pretty It's pretty damning.
I would say, yeah, that was kind of a crazy number, but also I guess it gets to the whole point of maybe doing this sort of public private financing. This idea of having a smoothing effect on the housing cycle or having a sort of backstop for capacity at a time of higher interest rates. But then to that point
there are limits. And even Montgomery County, you know, Zach was talking about the guarantees and having to present their finances to Moody's every year and get a rating for unibonds and things like that, But there is an impact of higher rates there as well.
By the way, it looks like they have a triple A rating, at least Montgomery County does. That's the nice thing looking at the terminal while we were doing this, so very well rated across all three of the major credit rating agencies. But yeah, you know, this idea of using the public balance sheet in some way is really interesting. Also, I thought Zach's point about one of the major constraints, and again I think people tend to maybe abstract these
types of things away. Is Okay, you could have a public sector or a public authority, be a lan lord in some capacity, be the owner of what looks like normal market rate construction, But do you have the personnel capacity.
Yeah, it's not the government's expertise, right right. Typically, the big advantage of the government or the big specialty of the government is basically a lower cost of capital. Yeah, not actually execution on a lot of things. There are some exceptions, like you know, when we talk to the Department of Energy, they have a lot of energy experts
who are able to evaluate projects. But in general, I think the big advantage of the government is that lower cost of capital, and this kind of puts it to best effect.
Yeah.
No, it's really interesting to think about. Yeah, personnel is a constraint, and hiring is a constraint right now, and public sector hiring is a constraint right now, and it's one area in which public sector authorities across the country have had issues hiring. So it's interesting to see how, okay, you can transfer the ownership of the financing to the public sector in some way or another. But then still it doesn't mean that you don't have some of these
key constraints. Construction is another one, and it doesn't matter who it is. If labor is scarce, some materials are scarce. If you're waiting on you know, cooling equipment or whatever, it's going to be tough.
Yeah, So pros smooth the housing cycle, expand housing capacity, create more vibrant communities where there's a mix of low income and higher income residents. And I guess cons some people are inevitably gonna think this is unfair or someone is always no, no, okay, wait, can I just say I'm in a bad housing mood because my toilet has been broken for like six months right now? Yeah, I am. And also my neighbor drilled a hole in the partition wall and yeah, and I didn't have any hot water
on Sunday either. Oh, and the intercom's not working.
Yeah, this is all true. I've been hearing a lot about that.
Yeah, I'm sorry, that's right.
No, it's okay.
But for listeners, this is why Tracy is resentful of.
Other people getting a good deal out nice apartment.
Okay, shall we leave it there.
Let's leave it there.
This has been another episode of the Oddlots podcast. I'm Tracy Alloway. You can follow me Tracy Alloway.
And I'm Joe Wisenthal. You can follow me at The Stalwart.
Follow Paul Williams on Twitter. He's at pe Williams Underscore. Follow our producers Carmen Rodriguez at Carmen armand Dashel Bennett at Dashbot and kel Brooks at Calebrooks and special thanks to producer Moses Ondam And For more odd Laws content, go to Bloomberg dot com slash odd Lots, where we have transcripts the blog in a newsletter and you can talk about this episode in our discord twenty four to
seven with fellow listeners. Maybe we'll get up Paul or Zach or both of them to come in and answer follow up questions when this comes out.
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If you want or if you want Tracy to be able to afford a place where someone isn't going to
Be drilling a that too, I'd appreciate it all right, Thanks for listening,