Hampton Roads Rent Report - January 2024

New year, same problems. Here’s a look at the latest asking rents in January. Later on we take a deeper look at a worrying trend in the world of housing speculation. This one’s for the housing nerds.

Total Average All Units:  $1,850 / month
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The average asking rent per month for each unit type:

Studio: $1,409
1 Bedrooms: $1544
2 Bedrooms: $1771
3 Bedrooms: $2181
4+ Bedrooms: $2656

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City by City

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New Anti-Rent Gouging Bill‍

CityWork Director Alex Fella was recently interviewed by Dana Smith at 13 News Now on a new anti-rent gouging bill making its way through the Virginia legislature. The bill would tie rent increases to inflation and (more importantly) establish a civilian oversight board.

...“It allows for the creation of a civilian oversight board which to me is the most exciting development," Fella said. "That signals that there is an effort to rein in the legal authority and sovereignty that landlords and financiers have gathered over the last 40 years and start to turn some of that back over to the people who actually live in the cities who are renting here.”....

Read the interview and catch the video here.

New Book Out Next Year

It’s official! Liquid Cities is now under contract with Palgrave Macmillan. Set to be released next year, Fella's book examines the twinned crises of rising seas and rising rents in Hampton Roads.Liquid Cities looks at how the buy up of apartments by financial firms is entangled with the region’s climate adaptation plans. Which neighborhoods will be saved? And what will happen to renters when the water comes? Developed through the distinct views of individuals who navigate and contest the liquidation of their city by finance and by flood, its chapters arch across a variety of scenes in order to tell the compelling story of capital, water, and one region’s fight for its future.

Deja Vu - CLO Distress up 440%

On Instagram two years ago, we forecasted how rising interest rates would likely decimate the multifamily housing market, since so many buildings are purchased with high-profit but risky securitzed loans. Well, new data shows that late payments for Collateralized Loan Obligations are up 440% since last year. That might sound boring but it’s actually huge deal.

Collateralized Loan Obligations (CLOs) group together loans for apartment buildings. They’re like a big pot where a bunch of loans for apartment buildings are mixed together. And people can buy pieces of the pot and get money back over time. Every time rent is collected, a little bit goes to the landlord, a little to the bank that made the loan, a little to the investor that bought a piece of the pot.

For example, imagine you have a big box of crayons. Each crayon is a loan given to a landlord to buy an apartment building. Now, imagine we take all these crayons (loans) and put them into a giant crayon box. This big box is our Collateralized Loan Obligation, and we turn around and sell pieces of our big crayon box (CLO) to other investors.

If the owners of the apartment buildings pay back their loans on time, the people who bought a piece of the big crayon box get some money regularly. But, just like how some crayons might break, sometimes the loans don't get paid back. That can make the big crayon box not as valuable, and the people who bought a piece of it might not get as much money as they hoped.  
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We recently learned that 8.6% of loans made to landlords (our crayons) have fallen behind on repayment. That’s number has grown by 440% over the past 12 months signaling some major turbulence in the housing market.

3 Reasons Why This Matters (a lot).

1) More Rent Hikes: Landlords have been open about raising rents in order to cover the rising interest rates and pay back their loans, in some cases as much as $700 a month. But it hasn’t been enough. And now we’re seeing a wave of late payments by landlords on their loans.

2) Uncertainty for Renters: As landlords fall behind on their loans, it means uncertainty and risk for renters; neglect of building maintenance; and a likely sale of the apartment building to new owners to pay off debts.

3) Widespread Effect: On a larger scale, if distress rates continue to rise it could lead to cascading defaults on CLOs, like a stack of blocks with the bottom pulled out. That would wipe out a huge portions of liquidity in the housing market, leaving investors insolvent, and likely restricting any future credit to build new apartments as lenders become more risk-averse. Additionally, we could see increased stress on insurance groups like A.I.G who currently insure around $247 billion worth of CLOs. If this sound oddly identical to what happened with single family homes in 2008, that's because it is.

Is that likely to happen? The only answer is ¯\_(ツ)_/¯.  We know rents are going up, in part, to pay for rising interest rates on these risky loans. And that late payments show no sign of slowing down.

And now investors are starting to realize (yet again) that maybe treating housing as a casino wasn’t such a good idea.
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