Government Owned Apartments
Government owned apartments should decrease rent by around 30-40%. The two main ways government owned apartments decrease rent, is by cutting out the landlords and cutting out the banks.
Landlords currently have net profit margins of around 25%,1 net profit margins refers to profits after taxes and interest payments, meaning pure profits are even higher. Margins may differ by apartment for various reasons. With government ownership landlords are cutout and the government becomes the owner, this by itself should decrease rent by 20% or more due to the profit being eliminated.
The second way of decreasing rent is by cutting out the banks. With private ownership landlords generally have to take out loans to build a new property, and then have to pay the debt back plus interest. Landlords have to raise rent to cover this debt. Every so often ownership of an apartment may change. New owners often have to take out a loan to buy the apartment and the debt cycle begins again as the new owners have to pay off their debt. With government ownership tax revenue can be used to build initial properties, which eliminates the debt and unnecessary interest payments. With government ownership, ownership is perpetual, which eliminates the debt cycle that comes with ownership changing hands in the private.
Another way of decreasing rent is by using computerized management systems. Most management systems use archaic methods, where potential renters have to contact a manager, meet in person and do paperwork before beginning to rent. Whether government owned or private owned, efficiency of management could be increased by using computerized management. How this could be done is by having all available apartments on a website, where potential renters can just create an account and pick an apartment and begin to pay online. All locks could be key codes that could be created online by the renter after the renter makes their first payment. Possibly an app could be created that allows your phone to be used as a key fob. Possibly fingerprints could be used as well. This type of system could decrease the workload of management, allowing a single manager to manage a larger amount of total units. A system to filter out hackers who are pretending to rent apartments should probably be put in place. This could be done by having renters upload social security numbers and Oregon id numbers into accounts, also they could send a few pictures of the inside of their apartment after a week of use and everything is set up.
Other ways to lower rent include building smaller units, specifically studio apartments. Adding heavy-duty shelving near the ceilings of apartments, so renters can have more storage space without taking up floor space. Other amenities to increase the standard of living for renters include adding larger mailboxes for packages. All-women apartments could be created to help decrease sex-crime and increase safety. Different options can be created for women, some apartments where no men can enter, some where men can enter by invitation but can’t rent. All-family apartments could also be created, strictly for renters who have families. Similar to privately owned apartments, privately owned mobile home parks put unnecessary expenses on renters in the form of HOA fees. With government ownership, these fees should be able to be waived, and renters will pay for water and electricity directly. Other changes to mobile home parks may be made as well, such as adding larger mailboxes for packages or safes for packages at the mobile homes.Another possible way of decreasing rent is to have renters pay for maintenance of their unit directly. If renters pay these costs they can deal directly with maintenance and cut out the manager as a go between. This will decrease rent as renters will pay for these costs out of pocket instead. This will also decrease management costs as managers are freed up from this responsibility. Management will still deal with macro maintenance if there is a system wide issue with the property.
The process of bringing apartments under government ownership will mainly be through government purchases initially, although government built apartments may occur as well. This process will start slowly in order to ensure management is being run properly and rent is decreased to its fullest extent. After positive results have been shown, further purchases will be made. Before making purchases, the government will analyze the apartments of Portland and calculate average income level by apartment in order to focus initial government purchases on apartments with low-income residents. The government will analyze the value of apartments, to ensure landlords receive just compensation. Value can be determined using various methods including using the original cost of construction adjusted for increase in GDP per capita, current construction costs for similar styled apartments, as well as the current market value of the apartment. As long as the government manages the apartments strictly, paying employees equivalent to what the private is paying, and not hiring unnecessary employees, there should be a significant decrease in rent by bringing apartments under government ownership.
Housing forward is an organization in portland that already operates public apartments at a much lower rate of rent, this organization could potentially be uased as a model, although they are partially subsidized as well by the federal government .
Government Owned Mobile Home Parks
Similar to private owned apartments, private owned mobile home parks put unnecessary expenses on renters in the form of HOA fees. With government ownership these fees will be waived, renters will pay for water, electricity and property taxes directly. Other small reforms may be made as well, possibly adding mailboxes to homes, possibly safes for packages. I will work with owners to see what their preference is. This could potentially be done with apartments as well. Similar to the process of bringing apartments under government ownership, mobile home parks will be purchased by the government.
Other Reforms
Increase Construction – Cutting government funded capital projects that aren't necessary will free up labor. Managing the available labor and ensuring it is being used most efficteively can help increase construction of residential propoerty. It is important to know how much total construction in portland already occurs annually, including in the private in order to make good decisions on how to manage the available labor. Bringing in foreign construction companies on short term visas could also possibly increase production and lower costs.
Restricting Demolition - Restricting the demolition of houses, increasing strictness of demolition on all buildings, can all help increase the housing supply and free up labor. Over the past 18 years over 3,300 houses have been demolished unnecessarily, if those houses were still here there would be no crisis.
Restricting Size of Residential Properties - If average size of residential property built is decreased, the total units built could increased, by spreading laborover multiple propoerties. Banks could be required to keep track of the size of property when making construction loans, and make targets to keep average size of property at a certain level.
Restricting Construction of Office Buildings - Since covid, companies began moving out of commercial buildings at very high rates and have been working remotely,2 because of this, many properties have had high vacancy rates. It is unlikely companies are going to begin renting again as it less profitable then working remotely. The best way to decrease vacancy is by restricting the construction of office buildings and possibly other types of commericial property, until demand meets the current supply, which should happen as the population increases. Restricting construction of commercial property will free up labor for the construction of residential property as well. Possibly attracting research institutions to the city is another way decrease vacancy, if the research is successful a company may form and take up office space in the future. Possibly converting some of the commerical buildings into apartments could decrease supply, as well as be a low cost way of creating apartments. Companies that are in buildings that are getting converted can move to other commercial buildings that have space.
Eliminating Building Fees - Building fees often make up 20% of the cost of construction in Portland, this boosts prices for all generations, and increases debt when property is re-sold. Building fees currently bring in around $250-300 million in revenue for the city of Portland strictly for the construction of residential property alone, another estimated $250-300 is brought in from the construction of commercial property. When the cost of building decreases, this should put pressure on the prices of pre-existing buildings causing them to decrease due to the competition, as building new becomes cheaper.
Government Run Real Estate Company - A government-run real estate company could potentially be beneficial in several ways. Costs could potentially be decreased, by eliminating profit margins and decreasing other costs. Real estate-agents currently take around 6% of a sale. Developing companies currently have profit margins of 20%, when selling new properties. If the government took over the real-estate industry, they could theoretically decrease the costs by these amounts on sales of property. Real estate agents do play a role in the sale process, so some of the 6% represents labor. Possibly moving to a computerized real estate system where house are sold online, if the house had digital locks or fingerprint, potentially buyers could tour the house without having a real estate agent by sending them a temporary digital code. Government run developing companies theoretically should be able to eliminate the profit margin and just have salaried employees manage the company, which would decrease the cost of a property by 20%. A government-run real estate company could also bring liquidity to the market. Often times houses and properties take time to sell, a government-run real estate company could potentially buy properties that aren’t selling, and then just hold them until there is a buyer, and increase turnover in the housing market. This could especially be used to increase liquidity in rural areas, where there are often fewer buyers, and job opportunities are scarcer. There would have to be an initial fund created to buy houses, but then ideally it would become sustainable, selling and buying at the same rate.
Decreasing Property Taxes - Property taxes hits home owners, as well as renters indirectly. As budget cuts are made, property taxes can be lowered.
Regulating prices - Regulating the prices of homes is a posiblity as well. Regulating revenues, incomes and margins of development companies and real estate companies can also decrease prices. Increasing the supply of housing can also help decrease prices through competition.
References
1a Macrotrends. Apartment Investment And Management Profit Margin 2010-2024. Retrieved
from https://www.macrotrends.net/stocks/charts/AIV/apartment-investment-and-management/profit-margins
1b Otun Martins. Exploring Net Profit Margin in Commercial Real Estate. Retrieved from ttps://www.lev.co/blog/net-profit-margin
1c RealPageBlog. An Inside View on Real Estate Profit Margins. Retrieved from https://www.realpage.com/blog/an-inside-view-on-real-estate-profit-margins/
1d BiggerPockets. Apartment Complex Expenses. Retrieved from https://www.biggerpockets.com/forums/432/topics/457315-apartment-complex-expenses
2a Retrieved from https://www.bls.gov/opub/btn/volume-13/remote-work-productivity.htm
2b Retrieved from https://www.qualityinfo.org/-/work-from-home-rate-declined-in-2023-in-multnomah-county
3 Retrieved https://www.oregonlive.com/portland/2018/07/21_portland_neighborhood_analy.html?utm_medium=organic-socialflow&utm_source=facebook&utm_campaign=theoregonian&fbclid=IwY2xjawTFNRhleHRuA2FlbQIxMQBzcnRjBmFwcF9pZBAyMjIwMzkxNzg4MjAwODkyAAEe7otUKBG__5_gn1vRKfQRYK88_L8ukG2rNCgrFazcjE6cwxw42OsL9JCE9oc_aem_punU-d_CF06_cYbRwQgpGw