All About Apartments
Tom Bozzuto, Chairman & CEO of The Bozzuto Group and Chairman of the National Multi Housing Council (NMHC), recently testified before a House Energy and Commerce Subcommittee on behalf of NMHC and the National Apartment Association (NAA) regarding the economic strength of the apartment industry. “This is a robust $1.1 trillion industry that helps 35 million renters live in a home that’s right for them,” said Bozzuto. “We help build vibrant communities by offering housing choice, supporting local small businesses, creating millions of jobs and contributing to the fabric of communities across the country.” Highlighting a $72 million apartment construction project in Baltimore’s Union Wharf, Bozzuto drew the connection between job creation, manufacturing and multifamily development. “This building required enough concrete to fill 240 swimming pools. End-to-end, the lumber used would span about 331 miles and the drywall could cover more than 42 football fields. We will use 204,000 lbs. of granite, 290,000 bricks, more than 7,000 gallons of paint, 1,700 appliances and 3,500 cabinets,” said Bozzuto. “A significant percentage of these construction materials were manufactured in America, with more than 25 percent being sourced within 500 miles of the project site. And, with up to seven million new renter households forming this decade—almost half of all new households—the dollars and jobs we add to the economy will only grow in magnitude.” MHN Editorial Director Diana Mosher recently interviewed Bozzuto about his experience testifying before Congress.
How do you think your testimony to Congress was received?
Those of us who work in the apartment industry can’t imagine anyone not understanding our industry, or not being very conscious of our industry. We live, sleep, eat and breath it. But Congress is oblivious to the apartment industry. I was on a panel testifying with four other people, three of whom were representing the home building industry, in one way or another, and that is what Congress relates to because they live in single-family homes. I think we benefit as an industry whenever we have the opportunity to point out, as I did during my testimony, how many people the apartment industry houses in America, how it represents a cross section of Americans, and how much apartment housing is needed in America. And, further, what a significant impact we have on the economy. One or two of the Congressmen came up to me afterwards and thanked me for my testimony.
It’s frustrating to be there testifying and to recognize how little people on both sides of the aisle appreciate the importance of apartments. When you talk to so many of the Republicans, all they focus on is the glory of the single-family home. And when you talk to the Democrats, all they focus on is the need for subsidized housing. Everything in between—and all of their constituents in between—is ignored. And so it’s really critical that we make sure that we do everything we can to ensure they hear us.
Why do you think Congress has such a hard time understanding what the apartment industry is all about?
It depends upon what committee you testify in front of. This committee was a sub-committee of the House Energy and Commerce Committee. If we had been talking to a housing committee (and we testified not too long ago about HUD regulations), certainly that group of senators and congressmen have some greater awareness of the apartment industry; but, in general, the constituents they know—and the constituents they treat as adults—live in single-family homes. I think NMHC and NAA together do a great job of communicating to these folks, but it needs to be done over and over. NMHC has spent a lot of time lobbying about the future of the GSEs—Fannie Mae and Freddie Mac. And we point out that the apartment sector of Fannie and Freddie have been significant profit centers even throughout the economic crisis. But the public officials and most Americans, when they hear about Freddie Mac and Fannie Mae, only think about single-family housing. So, as an industry, we need to continue to support the effort to educate elected officials.
Do you think the American public also needs to be educated about the apartment industry?
I think educating the public is a good idea and also educating the media (present company excluded obviously). Once you get out beyond the multifamily industry press, I think the business press kind of understands the apartment industry, but when you get into the lay press, they do not understand apartments. So I think we do need to educate them. I think it’s important
So many of the questions that were asked of us [at this most recent sub-committee hearing] were focused on the single-family home market and single-family home mortgages. So I think it’s really important for us to continue to work with these public officials one on one. They don’t hesitate to call on us when they’re looking for help in running their campaigns. We should make sure they understand the apartment business.
NMHC and NAA have a new joint website [to help educate] about apartments. Among other things, it talks about the economic impact in individual communities. NMHC and NAA are spending a lot of time and money trying to make people in Washington more aware of what apartments do.
Why were you called to testify?
That’s a great question. In the past I wouldn’t have been called. I don’t think anyone from the apartment industry would have been called. But what’s happened is NMHC has raised a lot more money through the Political Action Committee (PAC) than they had in the past. I think that’s getting the attention of people in Washington. That leads to the opportunity to make your case. There are a lot of groups out there that want to be heard. There’s a big din. I think you need to do things to rise above that, and that’s what the apartment industry is trying to do.
Can you tell us a bit about NMHC’s and NAA’s legislative agenda?
There are hundreds of initiatives but the number one priority is probably GSE reform—and ensuring that apartments are treated differently than single-family homes. The fact that apartments have been a net positive for the two agencies needs to be recognized. That’s number one. Number two is to ensure that if tax reform does take place, nothing will be done in such a way as to disadvantage the apartment industry. And, in that respect we’re interested in protecting the tax credit program, and in protecting the favorable treatment of carried interest. Third would be to ensure that legislation introduced regarding energy efficiency is done in a way that involves incentives and not penalties. Those are three of the key initiatives.
What do you think are the biggest challenges facing the apartment industry, and what are you most optimistic about?
I think long term for the next 15 years the demand for apartments will only continue to grow. I think that’s driven by demographics and social change. A very large segment of the population is young. The second largest baby bulge in our history is just now in the process of getting their education. As they come out of school, they will rent apartments. And given the fact that marriage is increasingly postponed to a later age, they will live in apartments for longer than their predecessors did. So demand for apartments, I think, will continue to be strong for the next 10 to 15 years.
Short term—and this is where I worry—we will see episodic bubbles. We’ll see apartments being overbuilt during certain times, then we’ll see capital shut off, and then we’ll see apartments start again and we’ll see capital shut off again. Within this upward trajectory we’ll see periodic overbuilding situations, but I think for the most part the apartment market is a very good place to be for the foreseeable future.
Do you have a lot in the construction pipeline right now?
We have almost three quarters of a billion dollars worth of projects currently under construction. Although we have a number of projects in our pipeline, we will be slowing down the starts over the next 18 months in an attempt to try and pace ourselves a bit, and to deal with the cycles I was talking about earlier.
Do you see the company expanding to new markets?
Well we have grown our presence dramatically in Metropolitan New York and in Metropolitan Boston, and yet do not have near the presence in either of those markets that we would like or expect to be able to attain. So for the moment we’re focusing on continued growth in those markets. That’s primarily, for the moment, on our management business. Our development company is working on a number of projects that we’ll be starting in the next couple of years, and in the next year in the Philadelphia metropolitan area. I would expect that over time we will increase our activity from a development perspective further north/north of Philadelphia up towards New England.
Your company has taken a real interest in design and is using it to gain a competitive edge in the marketplace. What are your thoughts on that?
First of all, thank you for that. My son Toby has really focused us even more than ever on design innovation based on information that we’re able to glean from our role managing homes for 50 thousand people. We manage something in the range of 40,000 apartments, so there are 55-60 thousand people living there and we look at what they like and what they don’t like. We use the education we get managing the homes of our residents to inform our design decisions and make us better developers.