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My Google notifications blew up this morning with an announcement from the office of Atlanta City Mayor Keisha Lance Bottoms concerning new build and addition permits in a section of the West End:
Please read the article before going on. I don’t pars sh–stuff.
Also, I won’t mince words: This edict by the Mayor is a ham-handed attempt to slow the appreciation in real estate prices around the Quarry Park in a desperate bid to stave the flow of legacy residents out of the City. The following article is my opinion on the subject:
This executive order from the office of Mayor Keisha Lance-Bottoms does nothing to address gentrification of the West Side Quarry Park; and further, it does not help alleviate the affordable housing crisis in a meaningful way. It punishes the owners of the smaller homes requiring an addition by preventing them from being expanded or torn down, and thus unable to reach their full market value.
I would wager that many investors are worried by this shot across the bow from the Mayor’s office, but this won’t hurt investors. In fact, it’ll help in negotiations tremendously, and I’ll explain why in a second.
Money continues to pour into redeveloping Atlanta’s core. Nothing will stop that now. There are opportunity zones. Brew pubs and developers are snapping up real estate left and right. The Atlanta Beltline has rounded first and is streaking for second base: The I-75/85 interchange. Once it crosses that threshold, only an executive order from Almighty God can stop area values from appreciating rapidly.
(By the way; God, if you’re reading this, please don’t do that. I was just using hyperbole. But you already knew that.)
No matter what, the rest of the West Side will go on improving around these restricted areas over the next six months, and the resulting imbalance in values (for the smaller homes) will build up around this Quarry Park ‘permit desert’ like water behind a dam. This artificial imbalance will depress the value of the smaller homes in the permit desert:
“You know Ms. Seller, back before the Mayor made it impossible to add square footage to your 800 square foot home, I could’ve offered you $80,000. But now that it’s going to remain an 800sf home from 1945 for the foreseeable future, I can only offer you $40,000 because the house doesn’t have the square footage necessary to make it into a three-bed, two-bath home. Heck, if you were just one street over, you could get $80,000, but…”
[For you new to residential real estate redevelopment, here is a common rule of thumb: You need at least 1200sf to make a nice three-bedroom, two-bathroom home that will sell towards the top of the market. An 800sf home, or even 1000sf, is not ideal, and usually requires an addition, or even having to tear the house down and build new, to bring that parcel to full market value.]
So…Was that the point? Crush the value of specific homeowners to dissuade more selling and moving? Did some egghead in the Mayor’s office stand up and say: ‘Hey guys, I know how to keep people in their homes! Put them at a severe negotiating disadvantage!’
Lookit: People gonna sell; market up or market down, executive order or no executive order, asteroid, climate change or Corona Virus pandemic. When the market is hot, sellers who need to…Sell, especially owners of homes in need of major renovations or repairs, of which there are a TON in the West Side. Nobody is pressuring any of these owners to sell. I can send all the letters, RVMs and text blasts, but if somebody isn’t thinking about selling, they don’t call, they don’t answer, and they are happy to tell me where I can stick it.
But people grow old and want to move out, or they need cash for one reason or another, and they don’t have the money or skillset necessary to renovate their homes themselves. So they decide to press the easy button and take a cash offer from a small-time real estate investor. No one is holding a gun to their heads, and in many cases, they’re ecstatic that they can get what they can for a home they thought was worthless! This is one of the key mechanisms behind gentrification.
Problem is, I don’t think the neighbors in this area would think to pin the pricing problem on the Mayor’s office. “It’s just those dirty investors conspiring to low-ball us all at once!”
We who pay 30% of market value for properties make a pretty big target, I’ll grant you that, and we should probably do a better job of explaining our value to our community (i.e. employing dozens of people from myriad trades, improving neighborhoods, growing investor capital, etc.).
Or maybe, if enough investors explain it to them, sellers in the permit desert will get it. One way or another, the City will probably take notice, hopefully, maybe. An analyst, or more likely an astute journalist, will notice cash home sales prices plummeting in the area, notify the Mayor, who will then quietly reverse the executive order.
As soon as that happens, all those little 800sf homes purchased at an artificial discount will get flipped to rehab outfits like mine, and at a huge profit for the acquisitions teams who leveraged the executive order against the homeowners.
Trust me: This executive order is a bonanza for investors because it A) It can’t last forever, and B) It’s depleted-uranium hollow-tip negotiating ammunition against sellers of small homes located inside the permit desert, people who already get the least when they sell.
I can imagine the face of the next small-home seller I inform that it was Mayor Keisha Lance-Bottoms who artificially stunted the progress of the market in their neighborhood by making their properties extremely unattractive to short term (12-month or less closing to closing) investors (aka the majority of the investing market), because the city won’t let permit the master suite addition needed to reach full market value. They’ll probably be confused at first. You might be confused right now. Hell, I had to re-write that sentence a few times.
But a few more minutes of conversation and it will dawn on them: ‘So you’re saying that you can’t make enough money with this property to pay me what I’m asking for it?’
Yup. Math doesn’t lie.
HEY! City of Atlanta! Here’s a freebie: If you want to increase affordable housing, stop spraying Round-Up at your roses. The heavy-handed moves to kill the market hurt the neighbors in these areas, too. But I won’t be all snark and no help. Have you considered the following ideas?
1. Readdress zoning regulations.
2. Put a moratorium on tax increases for legacy homeowners.
3. Create robust tax incentives for developing affordable multi-family housing.
4. Expand and improve public transportation.
5. Approve more retirement community development.
6. Beef up the police force.
I would suggest to the Mayor that she step back from this overreaching executive order and put a little more thought into which actions she takes to increase affordable housing on the West Side and maintain legacy homeowners in their homes.
We in the investment community will not be cowed by this order; we find it an amusing admonition of the powerlessness of the Mayor’s office against the market forces, and more darkly, there are those among us will simply leverage this restriction against the very people the Mayor is trying to help.
Also, why can’t the City departments all conduct this affordable housing study in real-time? Why do we have to anchor the boat in order to tell which way the wind is blowing? Direction is only found when one is moving. Why can’t the city coordinate the affordable housing strategy in real time?
Maybe I don’t understand how government thinks about problems, and the affordable housing crisis is a problem, I’ll grant you that. How does one keep a wide distribution of incomes as close as possible to the most desirable parts of a successful city? I get that, and I understand why it’s valuable.
God knows I don’t have the solutions, but just slamming on the brakes isn’t helping anybody. Keisha: Look for a better way. For the good of everyone, the market and the City.
Just A Guy Who Puts Bread On The Table With Real Estate Investing
PS – Am I missing something here? I just formed this opinion today, and I am not one to walk away from a debate, so COMMENT BELOW with your responses, thoughts, counter-arguments, sarcastic admonitions, invitations to buy Russian Viagra, and how Trump or Hilary is to blame. Whatever it is, I’ll calmly read it before deleting it forever. Just kidding. Comment. Really. I mean it.