Nearly everyone is talking about housing in Utah. The high cost of housing is a concern for young families considering purchasing their first home, for parents thinking about the next generation, for seniors on fixed incomes struggling with rising property taxes, for those without a home, and for those who rent. Rising housing costs impact both urban and rural communities. Much of our future wealth creation and community stability rest on our housing policy over the coming decades.
Structurally Short Supply
In Utah, we are building residential housing at a furious rate. Along the Wasatch Front in 2022 we pulled 6,682 home building permits(1) and completed 11,773 multifamily units(2). That is a an estimated 18,455 new housing units along the Wasatch Front in 2022. In Washington County, we pulled 1,934 home building permits(1) and completed 470 multifamily units(2). That is an estimated 2,404 new housing units in Washington County. Adding 439 home building permits in Iron County, that is approximately 21,000 housing units statewide.
Utah grew by 61,242 residents last year(3). That is 22,269 housing units assuming 2.75 people per household. Except it doesn't account for short-term rentals and second homes.
For generations, owning a home was the American dream. Today, in addition to owning a primary residence, owning a second home or a short-term rental is becoming much more common. Individuals aspire to own a cabin in the mountains, a place on the lake, or an short-term rental in a vacation destination. As travel and tourism increase in the state and as we see increase economic success, demand for housing is rising much faster than simply population growth.
This is the reason we have a structural shortage. If demand were for just population growth, we would be building about the right number of homes. To keep up with future housing demand, we have to consider how many second and short-term rental homes are needed to avoid being structurally short.
Housing and Inflation
In each of the last 7 decades, home prices have risen faster than inflation. This makes sense because if the price of materials and labor are rising, then the cost of building a new home must also rise. During high inflationary periods, such as the 1970's and the past three years, efforts to significantly increase the number of units built can backfire. Intuitively, increased supply should result in lower cost. In a high inflationary environment, materials and labor costs are rising because they are under supplied. Efforts to increase housing supply too quickly will pressure labor and materials prices to rise even faster, making the problem worse in the short-run.
Reducing Regulatory Barriers
Some argue reducing regulatory barriers will reduce cost and therefore prices. These regulatory changes will only reduce the price to the end consumer if it materially lowers the cost structure or materially increases supply of units built, or third materially reduces demand for second home and short-term rental investments. If it doesn’t accomplish one of these requirements, then reducing regulatory barriers won't be effective in solving housing affordability issues.
Many are worried about affordability. I have heard it reported more than one once that 70% of Utahans can't afford to purchase a home today given their current income. It is important to remember that 70% of Utahans already own a home and their payment is fixed. If inflation drives wages higher, that increase in income may become discretionary--potentially creating more spending power and more inflation. For those who don't own a home and are looking to buy, rising prices and the rising interest rates that accompany inflation push home ownership out of reach.
What should we do? Most of our efforts to solve the inflationary home price problem make the problem worse. For example, if we create a first time home buyer program to offset the rising cost of housing, we increase demand for housing and prices will be relatively higher than they would otherwise have been. If rents are too high, subsidizing rents increases demand for rental units, causing rents to rise. As a result, one of the best solutions in an inflationary cycle is to wait and try not to contribute to the inflation.
Affordable housing in this context is we are speaking of government subsidized housing. Although well intended, affordable housing and deeply affordable housing can contribute to housing inflation. If the supply of labor and materials is already constrained and creating inflationary pressure, building thousands of subsidized units will result in higher construction costs. For affordable housing developments to have their highest impact, they should be built in a time when there is adequate supply of materials and labor so as not to significantly interfere with the housing market.
Affordable housing can be effective where it is designed to get people help and then get them moving to a market rate solution. Affordable housing that incentivizes long-term residents with rent subsidies is a wealth trap and very expensive for governments.
It is critical for our communities to have stability in schools, church, government, and other civic structures. When there are a high proportion of renters in a community, the housing structure can contribute to turnover and instability in a community as landlords raise rents and sell investment properties. The only way to control how long you stay, how much you pay, and what neighborhoods are available is to purchase a home. Otherwise the Landlord will decide how long you stay, how much you pay, and what options are available to rent.
Home Ownership and Wealth
According to the Federal Reserve, the largest single contributor to household wealth is equity in a primary residence. More than a 401(k), more than savings, and more than investment properties. This information becomes even more valuable when we recognize wealth gaps in the country closely mirror home ownership gaps. It is nearly impossible to close wealth gaps without addressing home ownership rates among demographic groups.
While some are persuaded to rent instead of buy, we should remember that you will buy at least one home during our lifetime…yours or your landlord's.
In summary, housing is a difficult challenge. Supply is tight because we have to build for more than just population growth. Demand will increase as more people can afford second homes and short-term rental investment properties. Building more when prices are rising may make cause prices to rise even more quickly as builders compete for labor and materials. Affordable housing solutions require keeping people moving into market-rate solutions. Finally, housing is critical to community stability and wealth creation. Given the current context of an inflationary economic cycle, a measure of restraint and patience may be the best solution so as to avoid pushing home prices even higher when policies were intended to keep housing costs down.
(1) ERA Brokers Consolidated 2023 Residential Review. Click on the "Residential Market Research" link below for more information.
(2) NAI Excel | NAI Vegas 2023 Commercial Real Estate Outlook. Click on the "Commercial and Multi-family Market Research" link below for more information.
(3) Utah Population Estimates Committee effective July 1, 2022.
Restraining the size of state government requires restricting its access to revenue. Governments tend to consume whatever revenue is in front of them. The best way to keep state government from growing faster than a state economy is to constrain access to revenue. Many states are effectively controlling the cost of government operations. Most states and the federal government are struggling to restrict growth of social programs.
The Utah House of Representatives voted to eliminate the sales tax on food subject to voters choosing to removing the constitutional earmark that historically reserved income tax funds for spending on education. I was one of a few who opposed the bill. Following are the reasons why:
Eliminating the Sales Tax on Food is Less Effective than Reducing Income Taxes
While I am for reducing taxes wherever we can, there is a large surplus in the income tax fund and better policy would have been to reduce income taxes further than the legislature has proposed this session. The current income tax reduction proposal will reduce the rate from 4.85% to 4.65%. This reduction is estimated to be $380 million in ongoing tax relief. Applying the $200mm sales tax on food reduction to income tax relief would get Utah very close to a 4.5% income tax rate. We are going to have to find ways to keep reducing income tax when Nevada and Wyoming are at 0%, Arizona is at 2.5% and Colorado is at 4.4%. Eliminating sales tax on food also impacts local cities and counties who rely on sales tax as a part of their budget.
Utah Can Continue to Successfully Balance Its Budget
One of the most common arguments for removing the constitutional earmark is the need for budget flexibility. This refrain is not new. In 2019 we were told that if we didn't increase sales tax revenue then the state would not be able to balance its budget. We were also told that in time of recession the sales tax was too volatile. Looking back at the 2020 recession, both assertions were incorrect. Sales tax proved more stable, income tax proved to be more volatile, and Utah successfully balanced its budget.
Utah is Considered the Best Managed State
Our state has lead on nearly every metric of state fiscal responsibility. On removing the earmark, we are not leading. We are following many other states who have not managed their state as effectively as Utah has. Our success is due to good leadership, but it is also do to balanced budget requirements and restrictions on the general fund.
Social Services Spending Growth is Unsustainable
Medicaid, Medicare, Social Security, and related programs in the United States Federal Budget are the largest budget line item and are growing faster than the economy. Because there are no constraints to contain expenditures and because we all genuinely want to help children, the disabled, and the elderly, our deficits are over $1 trillion annually and growing. In Utah, social services is the largest line item at approximately $8.5 billion and one of the fastest growing. Historically, our social services spending has been constrained by the resources available in the general fund. Utah weakened the constraint when we amended the constitution to include spending on children and the disabled, but this final step removes any remaining constraints the earmark might have had on social services spending.
It is very difficult to constrain spending in government. The most effective constraints on spending are those that limit resources. The constitutional earmark limited the growth of the largest, fastest growing portion of government. If the citizens vote to approve the constitutional amendment, it will be up to the legislature and the citizens to do the hard work the earmark has done for us over many decades contributing to Utah's status as the best managed state.
The Utah House of Representatives passed a critical bill that supports youth and families. HB 311, "Social Media Usage Amendments" empowers parents to safeguard children, fight back against addictive algorithms, and hold social media companies responsible.
In 2021, the Wall Street Journal published an article "How TikTok Serves Up Sex and Drug Videos". The Journal highlighted how the social media platform sent to accounts for minors dozens and in some cases hundreds of videos promoting drugs, sex, and pornography. This content is not only inappropriate for minors, it can be addictive and destructive. It contributes to the mental health struggles of our youth.
We are concerned about mental health in our communities. Intermountain Health created a video to feature the importance of this issue and share their perspective about the connection between mental health and physical health for our youth. This bill specifically addresses the kind of content that undermines both physical and emotional health.
Something can be done about this. For streaming services such as Netflix, Disney+, or Amazon Prime there are rating systems and content restrictions for minors. For online video games and consoles, there are rating systems and content restrictions for minors. For decades, movies have had rating systems and content restrictions. We restrict content downloaded in schools and other public settings because it is not appropriate for minors. It is reasonable and appropriate for the State of Utah to restrict the kind of content that is distributed to minors on social media. Further, social media companies have a responsibility to stop sending harmful pornographic, drug related, and self harm content to youth.
In the United States, we believe individuals have a right to pursue happiness. It is called out in our founding documents as a god given inalienable right. Government intervenes when the exercise of these rights come into conflict with another's constitutional rights. A simple example of this conflict is when one person, in an effort to pursue happiness, takes something from another person. This act infringes on the second person's right and is prohibited by the government.
Parents take seriously the responsibility to take care of and look after their children. While children have the right to pursue happiness, parents are involved in the decision making process and many choices require parental consent. Parents have both responsibilities and rights as it relates to the rearing of their children. We seek to protect parental rights, although they are also limited. While the vast majority of the parents may exceptional choices with regard to their children, the State restricts some of the choices that parents can make. Parents can't authorize or require their children to marry. They can't give them unprescribed drugs. Parents are not authorized to abuse or neglect their children.
Last, minors have rights, but their rights are also restricted. Minors are subject to the appropriate exercise of parental rights. We restrict driving, enlisting in the military, marriage, entertainment and media content, consuming products or substances, and entering into binding contractual agreements. While each of these examples may have undesired consequences, they are not permanent. One can leave military service, divorce, stop consuming certain media or products, and a minor who enters into a contract with an adult is voidable.
2023 Utah Senate Bill 16 address a sensitive issue. The bill is titled "Transgender Medical Treatments and Procedures Amendments". It was sponsored in the Senate by a practicing physician and in the House by a practicing nurse. This bill does specific things:
1. It requires the Department of Health and Human Services to conduct a systematic review of the medical evidence regarding hormonal transgender treatments and provide recommendations to the Legislature.
2. It prohibits a health care provider from providing a hormonal transgender treatment to new patients.
3. It prohibits performing sex characteristic surgical procedures on a minor for the purpose of effectuating a sex change.
4. It addresses certain legal remedies.
Before voting on this bill, I spoke to people who felt strongly from both sides. I recognize that there are individuals who believe the Utah Legislature made the wrong decision on this issue. A key consideration for me related to the principle of both protecting and restricting individual rights. A minor who chooses to participate in this procedure can't undo the procedure. It is permanent. We are asking a minor to be accountable for a decision that in a contractual context we prohibit. We don't judge minors competent to marry or contract. Allowing a minor, even with their parents support and consent, to make this kind of life altering elective decision is premature. Some would argue that this is a life saving procedure and that there are other medical parallels. I respect that perspective. As I weighed the issue, I felt voting for the bill was the right thing to do.
Below is a link to the full text of the bill.
On Friday January 20, 2023, the Utah State House of Representatives voted to pass HB215, also know as Utah Fits All. I was one of 54 House members who voted in favor of the bill. The Senate is expected to take up the bill this week and the Governor is expected to sign it. This bill has broad positive impacts for students, families, and teachers in the State of Utah. A few highlights:
1. $200 million for teacher raises. Utah's teachers will receive a $4,200 raise plus an additional $1,800 increase in paid benefits, totaling $6,000 for Utah's district and charter school teachers.
2. A new scholarship will be available to approximately 5,000 of Utah's 675,000 students (about 4 students in each school). The scholarship prioritizes low income students, and provides funds for those students and their parents to pursue alternative education options directed by the family.
This student scholarship, also referred to an education savings account, is not unique to Utah. Arizona and Florida have led the country and Iowa just signed its education savings accounts into law this week. South Carolina, Oklahoma, and Ohio are working on legislation, according to the Wall Street Journal.
The Utah State Legislature supports Utah students, teachers, school districts, and charter schools. You might be surprised to know that this year, in addition to the $200 million allocated to teacher raises, it is expected that there will be hundreds of millions of dollars of additional funds going to public education. This session, the Utah State Legislature will commit more funds to education than at any time in our history.
I am for education. I am for schools. I am for teachers, I am for students, and I am for families. If you would like to learn more about the bill, below are two helpful summaries.
I'm looking forward to the 2023 legislative session. I am assigned to the Education and Political Subdivisions standing committees and the Social Services appropriations committee for this session.
The 2023 Utah House of Representatives Majority Caucus has set priorities for the upcoming session. They align in three categories, stewardship, affordability, and investment.
These categories align with many issues in Utah that are important to the people I have heard from. Housing, taxes, water, energy, development and public lands, education, and roads are all impactful issues in our communities. While there will be nearly 1,000 bills considered in this session, I'm hopeful that on a few key issues I can help make a positive difference.
To learn more about these policy priorities, download the PDF document below.
As we reflect on the passing year and express wishes for a safe and happy new year, Alfred Tennyson's poem "In Memoriam" has special meaning. The poem was written after the passing of a dear friend, Arthur Henry Hallam in 1833 at age 22. Tennyson's poem stretches 2,916 lines organized into 133 sections. It took him 17 years to compose.
The first two verses of the hymn, "Ring Out, Wild Bells" come from the first two stanzas where the bells signal the end of the old year and the beginning of the new with the invitation to let the old year go. Tennyson then in the subsequent stanzas invites us to ring out and let go of the challenges of the time with the tolling of the bells, all of which are appropriate for our day.
"Ring out the grief that saps the mind,"
"Ring out the feud of rich and poor,"
"Ring out a slowly dying cause, And ancient forms of party strife;"
"Ring out the want, the care, the sin, The faithless coldness of the times;"
"Ring out false pride in place and blood, The civic slander and the spite;
"Ring out old shapes of foul disease;"
"Ring out the narrowing lust of gold;"
"Ring out the thousand wars of old,"
Tennyson, simultaneously invites us to ring in our better natures and hope for a redeemed future and the prophesied Millennium:
"Ring in the true."
"Ring in redress to all mankind."
"Ring in the nobler modes of life, With sweeter manners, purer laws."
"Ring in the common love of good."
"Ring in the thousand years of peace."
"Ring in the Christ that is to be."
Tennyson understood that the teachings of Jesus Christ were the solution to the challenges of their day. As we face grief, feuds, political strife, indifference, pride, pandemic, and war in our day, Tennyson's assertion still rings true. We too can look forward to peace and remember that there is much good in the year ahead.
Every year, the day before Thanksgiving, the Wall Street Journal publishes an article titled “And the Fair Land”. Following is an excerpt from the article:
“at home they see young arrayed against old, black against white, neighbor against neighbor…they see that the cities and countryside are in need of repair, yet find themselves threatened by scarcities of the resources that sustain their way of life.”
It is easy to find challenges in our country today. There is much to be concerned about in politics, economics, education, and civics. But what is right in our country exceeds what is wrong with it. I believe the solutions to today’s challenges are the same as the solutions when the article was first written in 1961.
“We can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measure. We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth.”
The resilience of a people that value liberty combined with the natural resources and financial capital of the people and institutions of this great country are reason for hope to exceed despair. For optimism to surpass discouragement. For the future to be even brighter than our past.
Semantics: "the meaning of a word, phrase, sentence, or text" (Oxford Languages, 2022 09 07).
Over long periods of time, the meaning of words change. The context for their use may change, the way they are used may change, and their frequency may change. "Square" in the 1950s was used differently and more frequently that it is today. "Lit" is not just lighting, or literature, it is cool or legitimate. These examples are the result of youth repurposing a word in a way adults hadn't considered. Today we are seeing a change in the meaning of the word for political purposes.
Inflation is a simple word, if we have inflation then prices are rising. In the spring of 2021, the United States government made an effort to explain rising prices as something else. Rising prices weren't inflation, they were "transitory" or temporary. The efforts to redefine the word because it wasn't popular to recognize inflation when it surfaced resulted in policy choices that entrenched inflation. Inflation will end when one or more of the following occurs: the supply of money is reduced, demand for goods and services falls, and/or productive capacity increases.
It is difficult to fight inflation with higher interest rates when policy choices increase disposable income (forgiving student loan debt) and increase supply costs (eliminating fossil fuels). As long as fiscal policy (government spending and taxation) and regulation is increasing demand and constraining supply, the Federal Reserve's monetary policy efforts to reduce inflation through higher interest rates are sterilized. We will see inflation rates fall, but price levels are likely to remain high.
Recession is another word fallen prey to semantics. Recession has historically been defined by two consecutive quarters of falling real GDP. The first quarter of 2022 saw real GDP fall by 1.6%. This means the output of goods and services in the United States fell by 1.6% compared with the same quarter in 2021, on an annualized basis. The second quarter saw real GDP fall by .6% compared with the second quarter of 2021. Traditionally, this would be a recession. Because employment and wages increased during this time, prices were rising (inflation), and calling a recession was not expedient, the government has been unwilling to identify the recession of 2022 as a recession.
There are other words the government is trying to change. Man, woman, male, female, racist, and capitalist are all facing transitory meanings. When you look at the words around these words you can see the meaning changing. Such as, "I identify as a man". In the past, it wasn't the choice of the individual to identify or not identify. You were or you were not. A racist was someone who labeled people by race, class, or some other category and deemed them inferior. A racist is now someone who does not accept the labels applied to them by others. A capitalist was someone who took care of themselves and created opportunity for others by responding to the forces of supply and demand. Now a capitalist is someone who takes advantage of others using market power and influence.
Who will defend the words? If we choose to change their meaning, what words do we use to say what we used to mean?
The solution to economic prosperity is straightforward. Fiscal responsibility, sound money, and stable regulatory policy. The solution to our identity is not to rewrite history, whitewash it, or redefine it, it is to learn from it and be better today because of it.
United States of America is still the most powerful economic influence in the world. If we choose to "drill baby drill", over the long run we will simultaneously erode Russia's financial ability to wage war on Ukraine and others by driving global energy prices down and slow inflation. This would begin the liberation of Eastern Europe from Russian influence through economic policy.
As natural gas supplies increase, we can re-route liquefied natural gas exports from China to Europe. As we engage Canada, open the Keystone XL pipeline, and enlist Mexico, we can reduce revenues to Russia and limit China's access to low cost energy resources. We can use our enormous energy resources to support our allies and weaken governments led by autocrats claiming a democratically elected mandate.
As an economic policy, capitalism beat communism and ended the cold war in the 1980s and we can do it again. Russia and China both acknowledged the failure of their centrally planned economic systems and moved to a form of capitalism to retain their political power. As a system of governance, communism has no better track record. Supposedly free elections are overshadowed by fear, censorship, and oppression. A truly free people would not chose the ruthlessness that governs the two Asian nations. On equality and opportunity, Russia and China have made the political class in the two countries wealthy in a way that would make the robber barons of the early 1900's blush. While they pay lip service to their citizens, they coerce them into systematic oppression and trap them in long term poverty. The wealth creation of western economies and the spontaneous innovation of free people will always outmatch centrally planned economies and their political class. This is why they can't wean themselves off a form of capitalism.
We should untether the us economy and demonstrate unequivocally that there is no economic system that can match it. We should not move forward with a 1960’s dual mandate of guns and butter. To leverage the economic strength of this country, we need to demonstrate the kind of fiscal policy that will firmly establish the United States as the global standard for fiscal stability, budget accountability, and credit worthiness. A United States Government that is not dependent on its allies or aggressors for financial support would demonstrate the impact for good that free markets, free governments, and free people can make in the 21st century. On defense, we should be the most respected nation in the world both because of our capability and our restraint.
If we can’t lead from the White House, we should lead from the respective states. Let states set in motion a wave of capitalism and freedom that will demonstrate the influence for good that God given rights protected by Constitutional governance, including life, liberty, property, and the pursuit of happiness can have on the lives of our people.
Real estate markets in 2021 showed historic gains as prices soared on low inventory.
Looking ahead, these six drivers will impact housing markets in 2022.
The trend toward the south and the intermountain west accelerated as employers became
more flexible with work-from-home options and higher-ed has expanded online learning.
Migration that favored large urban centers with high concentrations of employment and
education is now leaning toward recreation, tourism, and open space.
Materials and Labor Shortage
Lumber prices shocked the real estate world in the spring of 2021. Now, steel prices are setting
records and materials are in a rolling shortage. On the employment side, 23% of employees
are expected to change jobs in 2022. Key people and key materials remain in short supply and
working out supply logistics will take time.
Rising stock markets and rising real estate values coupled with direct capital infusion from
federal government stimulus means there is more money than ever circulating in the economy.
This expansion of capital is searching for investments. Unfortunately, every time capital is
placed in the stock market or the real estate market, a seller has capital returned that needs to
be re-invested. This is driving prices up and returns down.
Both short-term and long-term interest rates will be determined by Fed policy. Expectations
are that Fed stimulus will be withdrawn and short-term interest rate increases are imminent. If
these actions slow the economy or impact employment gains in California, New York, or Illinois,
expect the Fed to pump the brakes and resume more accommodative policies.
Along the I-15 corridor, more demand, materials and labor shortages, more capital to invest, and
low interest rates mean higher real estate prices in 2022. While the CPI hit 7% for December,
housing measured only a 4% increase while home prices rose over 20% in most markets in 2021.
Inflation is higher than reported.
One of the most difficult real estate challenges is affordability. It is compounded by rising home
prices and limited supply. Affordability can be improved by rising wages, falling home prices, or
lowering interest rates. In 2022, wages, home values, and materials are all expected to rise. It is a
challenging time for housing affordability.
While we won’t solve the affordability problem in 2022, we do know that over a lifetime, owning
beats renting consistently. Long-term housing stability and closing the wealth gap in the United
States both point to home ownership.
For more information please visit https://erabrokers.com/research/
The last twelve months have seen sentiment in residential housing markets change dramatically. The result is one of the most dynamic and challenging housing markets in memory. Following is a brief overview of market conditions over the past twelve months and a look at what to expect in the second half of 2021.
The summer of 2020 ended the first wave of COVID-19 cases and with it came a sense that the pandemic might be easing. As individuals and families considered their housing circumstances, their employment, their school opportunities and their personal constraints, they looked to move. Early in the summer, supply was plentiful and buyer demand—although increasing—was not driving multiple offer scenarios. Rental eviction moratoriums were being enforced and mortgage forbearance was widely available. With interest rates at record lows, moving to a home that provided safety from the virus and accommodated work and school circumstances started the wave of home buying.
An accelerating wave of COVID-19 cases in the fall increased buyer activity as people sought refuge from the pandemic and policies that restricted movement. With relocations increasing, existing housing inventory began to fall. Buyers entered the market faster than sellers offered homes for sale setting up multiple offer.
Builders, who just a few months ago were concerned about oversupply, found they had no inventory to sell. Many builders had released commitments in the spring and were now looking for lots, land, labor, and materials to ramp up their homebuilding operations. Interest rates remained near record lows and rents began to rise.
As COVID-19 cases fell from winter peaks and vaccinations rates rose, we experienced one of the most challenging markets for buyers ever recorded. What began as multiple offers turned into dozens of offers in many cases. The supply of available homes was measured in days, not months, and many builders moved to sell finished units only. Supply chain challenges and labor shortages became acute and seemingly everyone was following record high lumber prices. Builders renegotiated contracts and missed delivery deadlines.
Sellers asked for tens and hundreds of thousands of dollars over ask and required buyers to waive due diligence and financing contingencies. Prospective sellers were unable to move because they couldn’t find a new home to move into, deepening the shortage and accelerating the price appreciation.
Moving into the summer, lumber prices began to stabilize and then fall. Existing home inventories increased, although inventories remain lower than during the summer of 2020. Price levels are much higher, although price increases seem to be stabilizing. Some sellers are asking too much for their homes, taking themselves out of the market. Appropriately priced homes are still seeing multiple offers, although far from the frenzy of the spring. The COVID-19 Delta variant began a third wave of rising case numbers since the pandemic began.
Second Half 2021
Looking ahead to the fall and winter, we believe the same drivers are moving the market that we identified at the beginning of 2021. Home as a safe place is the number one priority for most home owners and renters. Individuals and families are still looking for a place to educate their children, work, and play while remaining safe from COVID-19. The increased flexibility of work arrangements are accelerating relocations. The recent increase in cases has some employers extending their work-from-home accommodations, which in turn
has employees moving to the place where they want to live while keeping their job. Low interest rates are softening the impact of higher prices as monthly payments remain manageable for many individuals and families. While inventories are higher than the past spring, overall inventory remains far below historical levels and far from oversupply.
Inventory levels should increase, bringing them closer in line to historical levels. Supply constraints will continue to disrupt builders, but not at the same level as the past spring. Rental demand will remain high and rental units will remain under supplied, causing rents to continue to rise in most markets. Price levels are at risk if interest rates rise, remote employees are called back to the office, or builders get ahead of market demand. Given the current conditions, we expect prices to rise in the second half of 2021, although more slowly than in the first half of the year.
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One year ago, in March 2020, State and Local Governments put the United States into a recession in response to the global COVID-19 Pandemic. From the outset, it was apparent this recession would be unlike the past recession, or any other in our memory (see my post from March 19, 2020). It set in motion structural changes in our economy that will last decades.
V, U, W, K Recovery
As soon as the recession was declared, economists tried to describe the shape of the recovery. The first forecasts were for a sharp recession and a proportionally sharp recovery, a “V”. As COVID surged in a second wave during the summer, the concern became a long recovery and a long bottom, or a “U” shaped recovery. The improving economics in the fall lead to fears of a fall recovery and a winter retrenchment, followed by a more sustained recovery in the spring, or a “W” recovery. It is clear, that the COVID-19 recession will be something different, a “K”.
A “K” shaped recovery is an economic cycle with a sharp downturn, followed by sectors that boom and others that bust. This bifurcated recovery is painful as some languish under frustratingly dismal conditions while others watch their economic outlook brighten.
Value stocks languished in bear territory following the spring correction while Tech was responsible for the S&P reaching an all-time high at the end of the year. Big box retail saw tremendous pressure on sales while industrial distribution centers experienced record demand. Apartments in the densest urban cores are saw lease rates fall more than 20% while suburban and rural housing saw record high price levels. Tourism destinations such as New York City, Hawaii, and Las Vegas were hit very hard while destinations near national parks in states that did not close performed well. Restaurants with large dining rooms struggled to remain open while drive-thrus saw record sales. Non-essential employees who could not work from home became unemployed while essential and remote enabled roles remained employed and may have thrived.
Unfortunately, K-12 education, one of the most resilient sectors in any recession, has not been spared the bifurcated outcomes. While budgets were hit with technology and curriculum modifications, the bigger impact was students who could continue to attend in person versus those who could not. Parents and students without means were disproportionately impacted by closed schools. With children at home, parents may have had to choose between essential jobs and their child’s education. Education is a means to opportunity, and many were set back by policies that kept children home without necessary technology, supervision, and support.
Structural Population Shift
Since the Industrial Revolution, people have migrated to cities for education and employment. While the country was historically dominated by small farms and agricultural jobs, the industrial revolution resulted in technology and productivity gains that transformed farming and created opportunity in nearly every other industry. The result was generations of better jobs and upward mobility concentrated in urban centers.
These urban centers have housed the nation’s largest employers and attracted talent from across the country. In many instances, employers are there because they were looking for a deep pool of human capital and the infrastructure to support their growth. Over decades, state and local governments set policy with the knowledge that employees would be required to work where their employers were headquartered.
While technology was enabling remote work and remote education for a few prior to the pandemic, COVID-19 may have broken this relationship between employer and geography by allowing millions of jobs to move remote nearly overnight.
Live, work, play is a movement that has been upended by COVID-19 and the structural shifts in its wake. It used to be that we lived where we worked. Now, many may have the opportunity to live anywhere. If they have that choice, will they choose to live where they play? Will they relocate to be near family? Will they choose to live in expensive urban centers? We have already seen that many are willing to relocate if their employer will allow them.
This is a potential reversal of a migration trend that could favor most communities in the country with only the largest, most expensive, most dense urban centers impacted. It is a reversal that could change population and demographic trends for generations to come.
What happens when interest rates are not set by market forces, but rather managed by policy? Jerome Powell, chair of the Federal Reserve, and Janet Yellen, immediate past chair of the Federal Reserve and current Secretary of the Treasury, have stated that they do not want to see interest rates rise. An increase in interest rates would make government borrowing more expensive.
What are the impacts of a managed low interest rate environment? First, is the intended boost to consumption and investment. Because interest rates are low consumers and investors are incentivized to spend more. Housing is a good example. A 1% decrease in interest rates on a $350,000 home will allow the price to rise approximately 14% while the mortgage payment remains the same. In other words, the payment on a $350,000 house at 4% is approximately the same as the payment on a $400,000 house at 3%.
There is downside. First, if you are looking to earn a return on savings, you will be disappointed. This incentivizes savers to take additional risk and compete for other investments like stocks, bonds, and real estate—driving those assets values up. Second, the distortion makes government borrowing for federal, state, and local governments appear lower than it should be, incentivizing borrowing by government.
When interest rates become more about policy decisions than economics, unexpected distortions occur that are not healthy in the long run.
More than ever, economics is valuable in helping understand the result of policy choices. It is important to listen to what policy makers say, but it is even more important to watch what they do.
Policy makers have often said they want to help individuals who have been hurt by the COVID-19 induced recession. More than once, they have issued checks of $1,400 to qualifying individuals. They have provided rental assistance and eviction restrictions. At the same time, interest rate policy has increased home values on average by $50,000 in the United States. This disparate impact has benefited homeowners and widened the wealth gap relative to those who rent.
Policy makers have said the want to put money in families’ pockets to help them weather the pandemic. The combined relief packages of over $5.2 trillion in COVID-19 stimulus in the United States distributed to over 130 million households would have been $40,000 per household if distributed directly. If relief focused only on those who lost jobs during 2020, the combined relief packages for approximately 25 million lost jobs is $208,000 per lost job.
Policy makers are concerned about large urban cities and their recovery. Structural shifts accelerating work from home options have released many from living in urban areas, and they have responded by moving to less crowded areas. The result is less traffic, less crime, better air, and better balance for relocating employees. The downside is less revenue to support urban infrastructure and programs.
Policy makers have said they are concerned about getting Americans back to work. Many will stay out of the work force by no choice of their own until economies are open and policy makers trust citizens to make good decisions.
Policy makers are concerned about equal opportunity for all Americans. There is no greater equalizer than education, yet in many communities our schools remain closed and those students who are least prepared to catch up are being impacted the most.
Unfortunately, as with most recessions, individuals are impacted differently. This recession is unique in that winners and losers are primarily determined by policy, not by economics. The response has been to stimulate the economy by lowering interest rates and fiscal spending of $5.2 trillion. Homeowners, suburban and rural communities, and essential services are winners that are benefiting from the upside in a “K” shaped recovery. Urban centers, renters, children, and low wage earners are feeling the downside. The policies of the last year are highly inflationary, even if inflation doesn’t show up in traditional consumption items such as food, fuel, or other household purchases. Asset prices are rising and will do so until the policy induced stimulus runs out.
Reduce Your Tax Liability, Buy Commercial Real Estate
If you have had strong income or expect to have a significant taxable income this year, investing in real estate may help. You can either pay the IRS, or do something they have incentivized you to do that allows you to keep your hard earned income.
It is not unusual for the tax code to use taxes to incentivize certain types of investment. For example, if you make financial contributions to a qualified retirement accounts, those contributions are deductible and reduce your overall taxable income, which reduces the amount of taxes owed in the year you make the investment.
Depreciation Benefits for Real Estate
Real estate assets differ from financial assets like stocks in that a portion of real estate gets consumed with time and is replaced. A real estate asset is part indestructible asset (the land) and part consumed asset (the improvements). Tax law recognizes improvements are consumed by allowing investors to depreciate the improvements but not the land. Depreciation is the reduction in value over time for the normal wear and tear of an asset. The amount of depreciation allowed is determined by a schedule provided by the IRS.
It has been known for many years that the IRS will allow a cost segregation study on real estate assets. This study is prepared by a professional who evaluates the real estate based on the property type, age, and nature of the improvements. Instead of being depreciated over 39.5 years, a cost segregation study separates the property into 5 year, 15 year, and 39.5 year improvements. For example, 15 year improvements are those improvements that have to be replaced in approximately 15 years because their useful life has been exceeded. This may include tenant improvements, the roof, or the HVAC system.
Segregating improvements into their respective 5, 15, and 39.5 year useful lives provides larger deductions in earlier years relative to a standard 39.5 year depreciation schedule. Given that depreciation reduces taxable income and assuming that depreciation today is more valuable than depreciation in the future, accelerated depreciation is valuable.
2017 Tax Law Allows for Accelerated Depreciation
President Trump’s tax law, Tax Cuts and Jobs Act, passed in 2017 made a substantial change to depreciation that benefits commercial real estate owners. It allows for 5 and 15 year property designated in a cost segregation study to be fully depreciated in the year the property is put in service. That means that if you purchase and put in use a property in 2020 and the property has $500,000 in 5 and 15 year improvements, then the owner could deduct up to $500,000 in depreciation in 2020.
Also significantly, the tax law in certain cases authorizes you to use the depreciation benefits to offset prior year income. You need to discuss this with your tax professional to determine if you qualify for this treatment.
Exhibit 1 shows a hypothetical $1,750,000 investment purchase where the value is allocated to land ($437,500), 39.5 year improvements ($812,500), and 5-15 year property ($500,000). In year 1, without cost segregation and accelerated depreciation, the straight line benefit on the 5 and 15 year property is $50,000 * 35% (the hypothetical tax rate), or $17,500. Under the 2017 tax law, additional depreciation benefits in Year 1 are $450,000, which at a 35% tax rate are worth $157,500. This means that in the year this hypothetical property is put into use, buying the property could save the investor $157,500 in income tax expense—or 9% of the property value.
There is always a catch. Accelerating depreciation reduces your basis in the property so that when it is time to sell, your gain is larger than if you had not accelerated the depreciation. That means your tax liability is larger when you sell in the future. Of course, you can exchange the property and defer the tax liability even further by utilizing a 1031 exchange.
What About Investors?
The best benefits are for property owners, but investors can accelerate depreciation to offset up to 100% of the future income generated from the project. As always, please consult your tax professional to determine how the new tax law applies to you.
There are may investment opportunities available to investors. All of them have their respective benefits. Financial assets like stocks, bonds, and mutual funds can be held in tax deferred accounts that allow for investments to accumulate while deferring tax liability. Benefits to owning real estate include the ability to depreciate the consumable portion of the asset over its useful life. The depreciation benefits are set by the IRS and were revised in the 2017 Tax Cuts and Jobs Act. The revision resulted in the ability to accelerate depreciation and reduce taxable income today. This can be a valuable benefit for investors looking to offset taxable income from real estate investments.
Working out Leases and Loans
The speed at which the economy stopped in 2020 put tremendous strain on landlord and tenant relationships. The Government’s actions to intentionally stop the economy to slow the spread of COVID 19 have closed or otherwise harmed many successful businesses. Tenants and landlords are both at risk from the economic impact. Property owners and lenders may feel similar tension. This discussion can be applied in both contexts, landlord/tenant and lender/owner.
Landlords and tenants may seem to be at odds, but their interests are more aligned than is readily apparent. When a landlord receives notice of a tenant in distress, at least six options can be considered:
We recommend evaluating each situation and identifying the best solution based on the unique circumstances. Recognize that with any of these options there are laws and contracts in place that may impact the decision making process. The context for discussing these options is commercial real estate, but the principles can be applied to residential scenarios with appropriate deference to applicable law and regulation.
Option 1: Do Nothing
If a tenant requests relief, the landlord is not obligated to grant the relief. Although there may be legitimate reasons for the tenant’s distress, the landlord is not operating the tenant’s business and is not obligated participate in the downside. The tenant isn’t paying additional rent when it is business is exceptionally good, why should the landlord reduce the rent when the tenant’s business is exceptionally bad?
Landlords may offer many reasons for not participating. Any of them may be legitimate from the landlord’s standpoint. One of the most common reasons to say no a request is to simply postpone making a decision. By not agreeing, the landlord preserves the option to make a decision later according to the terms of the lease agreement.
Tenants are not helpless in this situation. They have the option of simply not paying and forcing the landlord to enforce the terms of the lease or come to the negotiating table.
Option 2: Waive All or Partial Rent
If Option 1 is extraordinarily landlord friendly, Option 2 is extraordinarily tenant friendly. If a tenant requests relief, the landlord may grant it. From the landlord’s perspective, it may be much less expensive to waive rent than have the property go vacant, pay leasing commissions and tenant improvements to accommodate a new tenant. In a commercial application, vacancy, leasing fees, concessions, and tenant improvements can easily cost six months of rental income. In a residential context, vacancy and turnover cost may equal one or two months rent. A landlord may determine working with an existing tenant may be less expensive than finding a new one.
Tenants who make a request to waive rent should be understanding of the landlord’s situation. The building owner will also have expenses and obligations to meet and asking for a waiver of rent may create a hardship for the landlord. Tenants should understand that concessions granted by the landlord are not free to offer.
Option 3: Extend the Lease Term
The end of the lease agreement may present a negotiation. Sometimes the tenant willingly vacates. Sometimes the landlord choses not to offer an extension to the tenant. Frequently, the landlord prefers for the tenant to remain in place. In these cases, a temporary lease accommodation, such as a period of free rent, may be acceptable to a landlord in exchange for an extension of the lease.
The lease extension could be for the amount of time the lease was waived, or for any other agreed upon period of time, longer or shorter. Negotiating for a longer term would be most common. On the other hand, a landlord who wants to change tenants might negotiate to shorten the term of the lease.
Tenants should recognize that the larger the concession, the more the landlord will expect. Modifying lease terms to be longer (or shorter) may be worth the short-term financial flexibility needed.
Option 4: Make Up Payments Over Time
A tenant who needs short term relief may be able to make up the rent payment over time. It could be deferred for a short period of time, or it could be spread over all future lease payments—possibly with interest. This is referred to as capitalizing the rent. In this way, the tenant receives the accommodation requested and the landlord receives the rent earned—possibly with interest for having the payment postponed. While the timing is different than originally agreed in the lease, it is a solution that can be effective for both parties.
Tenants who have a good business and who will legitimately be back in business soon expect to be able to pay a little more in the future and should be prepared to make the landlord whole over time.
Option 5: Use the Security Deposit
Many lease agreements have a security deposit. It is common for that deposit to be one or two months rent. A tenant who has a security deposit in place may ask the landlord to accept the security deposit in lieu of making a rent payment. This ensures the landlord has the lease income needed and the tenant can skip a payment to support their business.
Tenants should understand that they will not receive their security deposit back at the end of the lease term. Further, they should be considerate of the way the space is returned to the landlord so that the landlord is not penalized for having forgone the security deposit at the tenant’s request.
Option 6: Improve the Credit Quality
A tenant may not have signed a corporate or personal guarantee. The tenant may have not pledged any collateral at the time of lease signing. Generally, landlords prefer stronger credit tenants to weak ones. With this assumption, a request from a tenant accompanied by an improvement in the credit may be favorably received by a landlord.
Tenants often negotiate to minimize long-term credit exposure. A tenant who wants the landlord to support its long term business opportunity can lower the risk of default to the landlord. A request to waive rent and simultaneously reduce tenant credit exposure could be seen as a sign of a tenant’s weakness and incentivize the landlord to find another tenant to lease the space.
There are many options available to both landlords and tenants facing difficult times. Any of the solutions could be appropriate depending on the circumstances. In considering these options, it is important to make sure than any adjustment is compliant with agreed upon covenants and in accordance with government regulations and directives, which differ for residential versus commercial property. Finally, it is critically important that whatever decision is made, document the revised terms in writing signed by the parties as an amendment to the agreement. Landlords and tenants can obtain better results as they work together.
NAI Excel, NAI Vegas, and its affiliates manage over $350 million in real estate assets from Salt Lake to Las Vegas and are available to assist in managing Landlord and Tenant relations.
The United States government struggled with the COVID-19 recovery bill to address the recession the government created. It will not be implemented but here is my proposal (skip to #5 below if you are in a hurry).
1) The bill that is being considered is enormous and highly inefficient. It will get passed anyway.
2) We should not subsidize state and local governments. They made the decision to go into recession, their revenues are protected (utilities, property taxes, income taxes). Sales tax has exposure, but it has always been more volatile than income and property taxes.
3) We should not subsidize businesses or industries. Their assets will be bought and the human capital will not be destroyed. Let the situation play out with investors and creditors.
4) We should not try and solve the situation through unemployment insurance. It is too bureaucratic. The money will not get distributed when it is needed, and then too much will get distributed when it is not needed.
5) There are approximately 130 million households in the United States. Congress will approve an astounding $2 trillion dollar package. That is $15,000 per household. Why not send every household $15,000? The IRS can claw back unneeded funds on next year’s tax return for those who do not lose their job and who make over $100,000 per year. If someone loses their job or does not make over $100,000 per year, then let them keep the money.
We are a consumption based economy. The business sector will weather the recession if consumers are not scared and broke. The payments will allow everyone to either get through the next couple of months or have some reserves set aside. Those who don’t end up needing it can return it on the next tax return. The rest of the country will be set to deal with the recession the government created. This solution can be executed fast, it is easy to implement, and easy to administer.
We are in Recession
The United States moved into recession because of COVID-19 and subsequent governmental actions. It hasn't been confirmed by official statistics, that will take time. A recession is defined as two consecutive quarters of falling Gross Domestic Product (GDP). The first quarter of 2020 will show a small drop in GDP because of COVID-19 personal distancing measures and impacts to nonessential business implemented by governments in March. The second quarter will be a much larger drop due to the impacts.
Which Sectors Will Be Hurt the Worst?
High exposure sectors include hospitality, travel, tourism, restaurants, airlines, and other businesses that put groups of people in close contact. The personal distancing measures governments have implemented will create residual reluctance for people to be in large groups and will slow recovery for some businesses. Further, any business or activities considered nonessential will be slower to rebound.
Who are the Winners?
First, winning in a recession is relative. Some will see revenues rise, but some may simply see revenues not fall as much as harder hit sectors. Delivery services will do well, online merchants will benefit. Personal services offered in homes will benefit. Healthcare, domestic manufacturing, transportation, housing, internet and communications services, and utilities considered essential will be more resilient and some will see upside.
Not the Same as Last Time
Each recession and recovery is different. The last recession was characterized by a surplus of homes built by home builders and inflated buyer demand from real estate investors buying homes no one planned to live in. It was made possible by the underwriting of loans where borrowers didn't have sufficient income to support the debt service.
Contrast this with current real estate markets. First, home builders have built many homes, but in some cases at half the rate of the last market cycle. There is very little standing inventory, and the homes have been purchased by people who will occupy them, or investors with someone to rent them. Further, when the loans were originated, the investors who purchased the homes had the income to support the investments.
This recession was initiated by COVID-19 being declared a global pandemic and the actions of governments to implement personal distancing and close nonessential businesses. The government knowingly put the United States in recession in an effort to stop a global pandemic.
There will be softness in real estate. New home construction will be impacted more than residential resale. Expensive markets will be impacted more than affordable markets. Low growth markets will be impacted more than high growth markets. Retail will be impacted more than industrial. Hospitality and vacation rentals have the most exposure today. Interest rates will be low and there will be opportunities for buyers.
The economy will adapt and recover. This recovery will be much quicker than the last one, but it still will take time. Unemployment will rise quickly and the hiring will be slow to recover because of an abundance of caution from employers. Recovery will begin when collective economic activity stops falling and starts growing again. The start of the recovery is not intuitive. It is when everything seems to be the worst. We call this the trough. The recovery lasts until we reach the peak of the last market cycle, which will be the fourth quarter of 2019. From there, we will resume economic expansion.
Everyone will adapt. Some adjustments will be easy, some will be hard. Individuals and businesses will make adjustments and we will begin a recovery. Some basic principles will persist. First, have cash set aside for a rainy day. Second, you can't get credit when you need it most. Secure credit when times are good. Third, change is inevitable. We can't always predict the source of change, but we can adapt and be responsive to change. Our world changed in the matter of a few months. The more quickly we make adjustments, the quicker we will begin the process of recovering.
Market research is an important aspect of real estate. In preparing for our Commercial Real Estate Outlook and Residential Review, we took additional time and space to outline fundamental demographic trends that will shape the intermountain region. Some highlights:
We are excited about the long term fundamentals of our markets. Over the next five years, population from Las Vegas to Salt Lake is projected to expand by approximately 350,000 people according to Utah and Nevada official estimates. That expansion will require 125,000 housing units. The corresponding commercial real estate expansion of Industrial, Office, and Retail is estimated to be 50-60 million square feet to accommodate the same population increase. This does not include schools, universities, hospitals, hospitality, and other special use assets. The following five years from 2026-2030 are projected to grow by nearly that amount again reaching to 600,000 new people. To view the reports see below.
Download the 2020 NAI Excel | NAI Vegas Decade in Review here:
Download the 2020 ERA Brokers Consolidated Residential Review here:
Many have proclaimed their disapproval over elections outcomes. Some have suggested foul play because their candidate isn't automatically declared the winner. Some have labeled elections processes undemocratic. In a few instances, unsatisfied individuals propose a referendum or ballot initiative to change election rules.
We are in need of a civics lesson. Our nation is not a democracy. It is a republic. If there is any doubt, look at the Constitution. Electors, consisting of a body equal in number and representation to the sum of the House of Representatives and the Senate, choose the President. In the event they cannot come to a majority, the House of Representatives makes the final determination. Originally, senators were chosen by state legislatures, not the broader public. In 1789, only the House of Representatives was elected by popular vote. Today, because of the 17th amendment, the Senate is also elected by popular vote.
Some advocate the wrong process for solving perceived elections problems. For example, Consider the discussion regarding the presidential election outcome where the popular vote and the electoral college produced different results. The United States can't change the process for electing the President from Electors to the winner of the popular vote by ballot initiative or legislation. It requires amending the Constitution.
A republic is fundamentally different from a democracy. In a democracy, voters take action or legislate through ballot initiatives and referenda. The majority rules--right or wrong with little consideration for the minority. Further, referenda are passed with no process for ammendment or improvement. In a republic, voters select representatives that govern according to a charter (or constitution) and these representatives act on behalf of voters in a deliberative process of legislation and negotiation. Voters may re-elect them or give the office to another.
Most of the time, those who substitute "democracy" for "republic" are making an unintended error. Similarly, the term "democracy" and Democrat are no more linked than "republic" and Republican. The respective parties may have opposing views on many issues, but both support our representative form of government.
Politics has always been contentious. Emotions run high when supporting candidates or debating interests and principles that individuals feel strongly about. Disagreements are common when parties seek to persuade detractors and reassure supporters. Contention over policy or an unfavorable election outcome is a poor justification for changing the process. The effectiveness of the representative process is grounded in the necessity of assembling a majority while protecting the interests of the minority.
Today, many argue there is too little accomplished by the Congress or the President. Their respective stalemates and corresponding contention are frustrating. To them, I argue that this was an intentional design of the founders to ensure that a majority in one body can't ignore the interests of others. If there is an inability to achieve consensus among a majority in Congress or among branches of government, we ought to take time to work through the issues. Some issues will move too slowly to appease advocates, but governance is a process of persuasion. By definition it is slow, you don't get everything you want, and there are opposing views trying to stop your efforts.
Understanding the process is an important part of participation. Citizens understand what it means to vote, but frequently misunderstand the process and misinterpret the outcomes. We must do a better job educating voters and their children about our elections and legislative processes if we want better voter participation with less contention in the future.
As a new public charter school authorized for 8-12th grades opening in August of this year, St. George Academy will help benefit all of the students in Southern Utah. Michael Dee Martineau titled his 2013 Department of Economics PhD dissertation at the University of Utah “The Competitive Effects of Charter Schools in Utah.” In his paper, he concluded “districts that have seen a greater degree of charter competition tend to see increases in traditional public school achievement”.
St. George Academy is designed to be an educational experience with the goal of better preparing students for college and the rest of their life. The Salt Lake Tribune published an article on March 5, 2017 titled “Struggling Students Forced to Wait as Utah’s Public Colleges Don’t Have Enough Therapists”. Therapists for what, you might ask? Anxiety, stress, higher expectations, or unsettling news according to the article. Our students need to be better prepared for life after high school graduation.
Students also need to be better prepared academically. Universities and colleges work with a large number of students who are not ready for their freshman classes. This problem manifests itself in two ways, students who start college but do not finish, and students who are required to pay for and take developmental courses before continuing with their education. The time and expense to students, colleges, and universities on individuals who are not graduating is concerning.
In public education, some have pitted local districts against charters. This is the wrong focus. There should be one focus. Students. I currently have children enrolled at both charter schools and district schools. Our children attend their respective schools not because of the kind of school they are, but rather for the educational experience they offer.
As much as anything the public sector does, education is the most impactful in our community. Every other aspect of well-functioning societies are positively impacted by a better educated population. Some argue our educational institutions are failing. I say let’s improve. Some say they are underfunded. I say let’s work with what we have. Others argue the best educators are leaving the industry. I say let’s prove them wrong.
We don’t offer education to a community, a school, a grade, or even a class. Education is a personal experience. It is offered to each individual. While students may sit in a class together, each student has the opportunity to choose to learn. Let’s improve by trying to create an environment where more students want to learn. Let’s rise above the funding constraints by demonstrating creativity and problem solving skills. Let’s demonstrate that education is more than bricks and mortar, programs and features. Education is a resourceful teacher inspiring students to learn.
St. George Academy will benefit the students walking through the doors, but it will do more. Our students, parents, faculty, and community members desire to be part of the solution in their own lives, and hopefully realize the conclusion asserted in Mr. Martineau’s paper, “a greater degree of school choice in Utah can indeed be a rising tide that lifts all boats.”
You can read the full dissertation here: https://collections.lib.utah.edu/details?id=195861
While the rest of the United States and the Wasatch Front have seen multi‐family development
recover, expand, and peak, Washington County has failed to build a single unit of market rate
multi‐family housing in a configuration over 20 units as of this writing. Even with rising rents and record low vacancies, development lags. This analysis considers the reasons for sluggish developer
demand and proposes solutions to ensuring there are more affordable housing options in the
St. George area in the future.
I reviewed over 30 charter school bond issues for schools located in Utah. The process involved reading the offering statements and aggregating information about the school, the key service providers, interest rates, and key economic terms.
For easy reference, I've assembled the data into two tables and used the data to create charts showing key relationships related to interest rates. Larger schools and schools with better credit ratings clearly have a financing advantage relative to smaller, lower credit quality schools. Further, they have lower relative issuance costs.
The State of Utah has tens of billions of dollars (yes, more than $10,000,000,000) in cash and short-term investments for liquidity, float, reserves, and savings. The strategy for managing this money is very important. Even a 0.1% increase in investment returns generates $10 million (yes, $10,000,000) in additional dividends to be distributed to entities of the State.
This analysis proposes increasing dividends for entities like municipalities, school districts, charter schools, water conservancy districts, and universities by altering the available investment options. Without increasing credit risk or raising taxes, we can distribute additional funds to government entities. While as an economist, I have to acknowledge there is no such thing as a free lunch, this is just about the closest thing to it.
All students are not considered equal, according to this analysis of state support for institutions
of Higher Education in Utah. When it comes to capital facilities and annual appropriations, the
results indicate that students at the University of Utah and Utah State University receive
significantly more support from the Utah State Legislature than the other institutions of higher
education. While some underfunded institutions are catching up, others are falling further
behind. Some of the discrepancies are justified while others may require a second look.
Also, for an expanded look at state facilities spending, view this blog post from earlier this year: http://rneilwalter.weebly.com/home/state-funded-buildings-are-not-free
Charter schools are public schools. State owned facilities, including charter schools, do not pay property taxes. Facilities leased by the state or one of its subdivisions do have to pay property taxes. Many states have exemptions for state facility leases, which would include schools, but Utah currently does not.
This is especially problematic for charter schools that are built by a developer as a stand-alone facility. Charter schools leasing one of these new facilities must bear the added burden of paying tens or hundreds of thousands of dollars in property tax expense. Many schools have dreamed of having a waiver. While there is no waiver, the summary below describes how schools may be able to take advantage of the property tax exemption by structuring their transaction appropriately.
You can preview the overview below or download the document as a PDF here.