‘The Accidental Economist’ with Jack Kern: Past Performance is No Guarantee of Past Performance

“The straight line, a respectable optical illusion...

“The straight line, a respectable optical illusion which ruins many a man.” ― Victor Hugo, Les Misérables

I was so pleased to attend the NMHC Apartment Strategies Update Conference and Board of Directors meeting in Boston on May 14th and 15th. Along with the usual suspects extolling the virtues of why it’s great to be in the apartment business, a number of very well thought out presentations were shared.

I am, as many of you know, a forecaster who enjoys reviewing massive amounts of data in the hope that I can glean a pattern that will indicate an unlikely trend. I have to share with you that I have, on many occasions been pleased to share some of this with colleagues, and received many helpful suggestions and improvements to the work. At least until the much-maligned and often-dreaded benchmarking occurs. In so many facets of the statistical business, whether it’s government or private data sources, the ever-present perspective of benchmarking rears its head and exacts a toll on algorithms, formulae and conclusions. I’ve gone from brilliant to luminary and also from dumb to dumber. It is sadly part of the research profession to have to constantly adapt to these revisions.

During the NMHC meeting, there was a lot of discussion about improvements in certain time series, most notably, employment gains. Researchers love this stuff because it often covers a lot of errors in forecasting trends. With the proliferation of benchmarked employment numbers providing fodder for cities to proclaim, “we’re back,” inevitably the herd of apartment acquisition teams rushes off the newest entrant in the top market of the minute club. I, for one, do not feel like a lot has changed, and in fact would like to offer an opinion on how things are really going. There has been a lot of discussion about the impact of single-family rentals on the oft misnamed “shadow market.” It does seem that people are renting more homes now than ever before, which helps to explain why and how the demand in a lot of markets was absorbed without much new construction.

It also seems that the rampant destruction of multifamily units in many cities has continued to inadvertently provide a cushion against over building so that most new properties find willing residents. The trend that I find most divisive in discussions is the length and depth of the recovery in apartment absorption. The issue is that the industry went from double digit rent increases to single digit rent increases in the past year, thereby signifying some sort of slowdown. If you look at the increased supply, increased employment growth as beneficial to apartment owners and the change in units taken out of service, the demand is just as high as in past years, but renters have a modestly greater choice in the existing housing stock. Right now, we’re just below the equilibrium line, where demand is higher than supply. In all likelihood, that isn’t changing any time soon. And most of the presentations at the meeting seem to agree.

Jack Kern is the research editor of Multi-Housing News and Commercial Property Executive. They don’t usually let him in the office in New York unless he brings donuts or cupcakes from some of the city’s amazing purveyors, which is a good thing because he would never be able to make a living as a baker. When he isn’t busy attending industry events for the free food and open bars, you can listen to him along with Senior Associate Editor Mike Ratliff on CPE-MHN podcasts. If you have an industry event with lots of free food and an open bar, you can invite Jack at jkern@multi-housingnews.com or by calling 301.601.1900.