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Biden's housing proposal during State of the Union

PLUS, How the SEC's Climate Rule Impacts CRE and 6 more RE insights

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A Quote

“Never put off till tomorrow what may be done day after tomorrow just as well.”

― Mark Twain

Today’s Rates

Macro Trends

Biden housing proposals during State of the Union link

  • President Joe Biden introduced significant housing proposals in his State of the Union address, including a notable tax credit for homeowners. He proposed an annual tax credit of $400 a month for two years to assist Americans with their mortgage payments when purchasing their first home or upgrading.

  • Another key initiative includes eliminating the requirement for title insurance on federally-backed mortgages for refinances, potentially saving homeowners $1,000. This measure, however, only applies to refinancing situations.

  • Biden also addressed challenges faced by renters, proposing measures against large landlords involved in antitrust violations like price fixing. His administration aims to cut red tape to facilitate federal financing for builders, contributing to a record 1.7 million new housing units nationwide.

  • The plan includes efforts to build and renovate 2 million affordable homes to lower rent prices. While these proposals received mixed reactions from the audience, with Democrats showing support and Republicans generally reserved, housing remains a critical issue for both lawmakers and the electorate with the upcoming election.

How the SEC's Climate Rule Impacts CRE link

The Securities and Exchange Commission (SEC) issued a final rule on March 6, 2024, that requires publicly listed companies to disclose climate-related risks. The rule aims to set a standard for how companies communicate with investors about greenhouse gas emissions, weather-related risks, and how they are preparing for the transition to a low-carbon economy.

The new rules require companies to:

  • Disclose climate-related risks that are likely to have a material impact on their business

  • Disclose how they are managing those risks

  • Disclose any related corporate targets

  • Provide climate-related disclosures in their annual reports and registration statements

  • Disclose any material physical risks related to climate change in their public filings

The rule will apply to calendar-year-end large accelerated filers, beginning with annual reports for the year ending December 31, 2025.

Real Estate Trends

Occupancy in 3-Bed Units Slumps link

  • Occupancy trends are shifting back to pre-pandemic patterns, with one-bedroom and two-bedroom units leading in occupancy rates. In January 2024, these units aligned with the national norm of 94.1% and 94.2% occupancy, respectively, while three-bedroom and efficiency units lagged behind.

  • Three-bedroom units, after reaching an all-time high during 2021 and 2022, recorded a significant drop. Their occupancy declined to 93.4% in January 2024, reflecting a return to more traditional living arrangements as the urgency for extra space decreases.

  • The pandemic-induced demand boom significantly impacted all unit types, with three-bedroom units experiencing the most substantial occupancy increase of 270 basis points from February 2020. This surge was attributed to the need for more space due to remote work and the spike in household formation during the pandemic.

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Rent Analysis Across US by NY Times link

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  • National rental rates have largely stabilized, with one-bedroom rates falling 0.7% year-over-year as of February 2024. The reduction in rental rate increases is a welcome change after the significant hikes of 2022 into 2023, showing a trend toward market normalization in some areas.

  • New construction, particularly in the Sun Belt and Western regions, has contributed to market stabilization. In cities like Dallas and Austin, Texas, an influx of new apartments has led to a 10% drop in one-bedroom rents, highlighting the impact of supply on rental prices.

  • Conversely, in supply-constrained markets like Syracuse, N.Y., and Chicago, rental rates for one-bedrooms have surged by 22% and 21% respectively. This indicates that in areas where demand outstrips supply, renters continue to face steep increases, underscoring the regional disparities in the rental market.

Off Topic

Mapped: North America Population Patterns by Density

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Something I found Interesting

Amazon Pays $650 Million for Nuclear-Powered Data Center in Pennsylvania link

  • Amazon Web Services (AWS) acquires a 1,200-acre site in Pennsylvania for $650 million, setting the record for the largest U.S. commercial sale of the year. The site, powered by a nearby nuclear power plant, will help AWS achieve its carbon emission goals.

  • The expansion plans include scaling the site to support up to 960 megawatts of data center capacity. This capacity is equivalent to the energy consumption of nearly 900,000 houses, reflecting the surging demand for data center infrastructure driven by artificial intelligence and cloud computing.

  • AWS aims to operate on 100% renewable energy by 2025, advancing its goal to achieve net-zero carbon emissions by 2040. The nuclear-powered data center aligns with this ambition, as nuclear energy offers a carbon-neutral energy source, critical for supporting large-scale, sustainable cloud service operations.

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Target Plans To Open More Than 300 Stores in the Next Decade link

  • Target is set to expand significantly, planning to open over 300 new stores, mainly full-sized, in the next decade. This move contrasts the current retail trend towards smaller formats. The new stores are expected to bring in $15 billion in incremental sales annually.

  • While not abandoning its smaller store formats, Target's shift indicates a strategic pivot towards larger stores, especially in new markets where it has not previously competed. The company has seen positive performance from its larger stores and is excited about the pipeline of new locations.

  • Target's investment doesn't stop at new stores; nearly 2,000 existing locations are set for upgrades over the next ten years. Enhancements include full remodels, adding Ulta Beauty shops, upgrading fixtures, and supporting same-day delivery services, emphasizing Target's commitment to both expansion and improvement of its retail experience.

One Chart

Las Vegas Retail Rent Growth Outperforms National Average for Ninth Straight Year

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Pro Member Only Content Below

A New Generation Of Brokerages Is On The Rise

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  • The real estate industry is witnessing a seismic shift with a new generation of brokerages emerging, outperforming traditional players. Overall transactions dropped by 19% in 2023, yet firms like eXp Realty, Compass, and Keller Williams fared better than their legacy counterparts.

  • Redfin significantly underperformed in the market, while Real Brokerage saw a staggering 78% growth in transaction volumes. This disruption is highlighted by the rapid rise of eXp Realty and Compass from the fringes to leading positions in transaction and sales volume.

  • Traditional brokerage giants lost over 19,000 agents in 2023 as agents moved towards lower-fee models to retain more commission. Notably, eXp Realty saw a net gain of 1,472 agents from Keller Williams and 509 from RE/MAX, underlining the attractiveness of their model.

  • Efficiency in brokerage business models is becoming increasingly vital. eXp Realty operates with significantly lower expenses per transaction compared to its peers, including tech-forward Redfin, which aligns more closely with traditional firms than disruptors.

  • The current market downturn offers a moment for reflection and learning within the industry. As the traditional brokerage model faces challenges, the rise of new, efficient business models suggests a pivotal Netflix vs. Blockbuster moment for real estate.

  • link

This Small Midwest Market Ranks Among National Rent Growth Winners 

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  • Fargo's effective asking rents rose by 5.4% in the year-ending February, positioning it among the top performers nationally. This growth is significantly above the Midwest average of 2.8% and the U.S. average of 0.2%.

  • The city avoided the dramatic rent fluctuations seen in many other markets during the pandemic, maintaining a steady growth that surpassed its pre-pandemic average of 1.1% from 2015-2019.

  • With a population of approximately 259,000 and less than 38,000 apartment units, Fargo has seen limited new supply, averaging about 400 units annually over the past five years. This scarcity has contributed to high occupancy rates, averaging 96% over the same period.

  • Despite recent rent increases, Fargo remains more affordable than many other areas, with effective asking rents averaging $1,027 in February 2024. This is below both the Midwest average of $1,408 and the U.S. average of $1,806.

  • link

Major Migration Shifts Shaping Housing Markets in 2024 

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  • The post-COVID migration surge has ended, with people moving less compared to the "Great American Move" of 2020 and 2021. This shift is due to the scarcity of available homes for sale or rent and many having locked in low mortgage rates.

  • Migration trends now show a preference for shorter-distance moves within the same metro areas rather than inter-metro relocations. Urban to suburban migration has decreased, with more urban dwellers opting to move to other urban areas instead of the suburbs.

  • Affordable areas near major, high-priced metros are becoming migration hotspots. Markets like Orlando have seen a slowdown or even negative growth in migration, with potential buyers moving to more affordable nearby metros to address the affordability challenge.

  • Recent migration winners and losers among large markets indicate varying impacts on housing demand. This trend highlights the importance of analyzing migration patterns for housing market executives to make informed development and investment decisions.

  • Expect out-of-town buyers and renters to impact home prices and rents less in 2024. However, stronger migration and housing demand are anticipated in more affordable metros near major, high-priced areas, prompting builders to invest in these regions for future development.

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That's all, folks.

Cheers,

Vidit

P.S - Read past newsletters here

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