How To Fix the US Housing Crisis - According to the Harvard Business Review | Ep 47

James: Welcome to the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing. And our mission is to equip people to invest wisely in both property and residence so that together we can build wealth while improving housing. I'm James and this is my wife, Jessi.

Jessi: Hey, so I was just, we were tucking in our kids and I was asking them, I asked Samson and I He was like, why did you have to do such a quick tuck in? I was like, oh, we're just, you know, dad and I are working on the podcast, you know, when I want to get it done. He goes, oh, yeah. I was like, what do you, what do you think the podcast is about?

Like, what do you think we do? He was like, well, I don't know. So I said something funny. I was like, do you think we do that? He was like, no. I was like, what do you think I say on the podcast? He goes yeah. I was like, that is pretty much what I say on the pod.

James: I

Jessi: was just like, well, I mean, you know, I say other brilliant things.

Like sometimes I ask questions. That's funny. I don't really, I haven't

James: really thought about it, but it will be kind of cool. It's kind of cool to think that there is a realm of possibility where, I don't know, 20 years from now that they're like, Oh yeah, I would love to see what my parents did and talked about.

And like, and they have video of it all, right? Like it's not just photos and, or tech stuff. I think about that with my blog as well. Like, ah, someday they'll read this. They'll read it. Probably not, but it's all good. It's all good. Well, Samson, Eleanor, today we are talking about this article that I read in the Harvard business review.

I always, exactly. I always feel really highfalutin whenever I say that. I'm like, yeah, yeah. I read

Jessi: the

James: Harvard business. Yeah, that's right. It's I like to say it's one of only two subscriptions that I have. The other, which is to Superman comics, so I

Jessi: balance it out.

James: Exactly. I have very specific tastes, but anyways, this one caught my eye because it is, it's written by a guy named Ed Freeman and he, the title of it is the market alone can't fix the U.

S. housing crisis.

Jessi: Interesting.

James: Yes. Yes. So spoiler, he's gonna, like, go big time on, like, government's gotta get way time, way big time involved in helping out. Alright. But I thought he brings up some really good points and some issues and just talks about how complicated this is. And he specifically attacks investors and landlords.

And, so, I've, I just, it's worth, it's worth talking about. As an investor and as a landlord yeah, and just, like, things like how do we keep this in mind And, and in some ways not be the person who he's railing against. So one of the things he talks about is that there are tens of millions of households that spend more than 30 percent of their income on housing, which I thought was interesting.

I know for our family, Our screening policy, we do essentially 33%. We say that the rent can not be any more than 30, than three times their income is how we word it, which comes out to

Jessi: their income has to be three times. Yeah,

James: sorry. Thank you. Yeah.

Jessi: I was like, hopefully your man, which

James: comes out to about 33%.

So I'm kind of like, yeah. I mean, what he talks about here is right on the We're right on the bubble. I have, I've have a hunch that percentage is more like 40 to 50%, which is why he's saying that. But it's just essentially he's like 30 percent is kind of the magic Parker and there's a lot of people who are over it right now.

He does say that That shelter is a basic human need. And so therefore the fact that we have some that's unaffordable should be a national scandal. I, I would probably quibble with the bar that he has set. He's definitely in the like. Well, we should have housing is affordable for everybody at all time.

Again, in the same way, he would probably stay in the same breath in the same way that clean water is available and clean air is available. I think he's like, he's putting us on the same level. And for me, my question would be like, well, let's talk about what equals good housing. I think that was exactly

Jessi: where my head went.

And it was like, unfortunately, like housing costs money. And. So you can't just say everyone should have housing needs met because the quality of the housing is variable. And so what someone can afford, what one person can afford, another maybe cannot, and what someone's standard of quality housing is maybe is totally different than what the next person's is.

James: So it's kind of interesting. That's complicated. I do fundamentally agree. Like there is this imbalance and there's ways to. There's issues with it. He goes on in this 12 pages that I've got here, I won't read the entire thing, but he goes on to kind of outline what some of the power, what some of the problem is, and he says that like one of the things that people have tried to say is like, Hey, we just got to fix zoning laws and we'll get into that and why that doesn't help necessarily, but like, that's one of them, but ultimately he goes, one of the biggest cause is the market power of developers and landlords.

And he goes, they have all this power and they take advantage of people. So what would be

Jessi: an example of them?

James: So, and we talked about this a bunch of weeks back, but there's the property management software company, real page that is currently being sued to which I'm kind of like, he, he really anchors himself on the real page thing that they've done.

And we'll get into what it is in a little bit, but I'm also like the systems working. Yeah. They did something bad. Then the system's correcting. Like. What's the problem here? Yeah, they weren't

Jessi: just let loose to do whatever they wanted.

James: But he gets into it. So essentially what RealPage did was they prioritized higher rents and accepted lower vacancy rates.

So RealPage, property management software, and he gets into the numbers here, but essentially he goes, They got a whole bunch of landlords enrolled into their system, so they got all the information. And essentially, it was as if there was just one big property management company setting the rates across an entire city, in some cases like 90 percent of them.

And so he goes, they could just raise everybody's rates and just go, yep, we're going to be okay with a higher vacancy rate. We don't care because eventually everyone's got to live somewhere. Mm hmm. And And he goes into the numbers. I, it's, it was a little weird. He's like, yeah, on average, they made 53 more dollars per unit per month.

It's like, what percentage is that? You know, I don't in DC, that's not a huge number, but so, you know, there's, there's some of that stuff where I'm like, okay, there's there. So that was a huge one. And The other one, we already talked about the permissive zoning rules. He goes, they just don't help.

And they don't confront the power of landlords that they have. Like, that's his, like, landlords are, are a problem. Like, that's his main, like, thrust. Like, ah, man.

Jessi: And it's just because they are, they are controlling what housing is available and how much it costs.

James: Correct. Yeah, yeah, yeah. Yeah, he says exactly here.

Landlords have the ability to raise prices above so called competitive levels and hold back the supply of housing. And then he cites the real page and so in some cases. They say they control as many as 19. 7 million rental units out of 22 million desirable investment grade apartment units. That's a large percentage percentage.

Exactly. The example he gave was in some places it's 60 percent and in other places it's a 90 percent of the broader market. They've got their software. And so I thought this was super interesting. So traditionally What's a goal as a property manager? Like, is it to get the absolute highest rent you can get?

Or is it to make sure you have as close to 100 percent occupancy as you can get?

Jessi: Depends on the landlord.

James: No, like you.

Jessi: Oh, me as a landlord?

James: Yeah. What's more important to you?

Jessi: What's What's more important to me is to keep it filled with a responsible tenant.

James: Right. So that's more on the a hundred percent occupancy side.

Well, real page decided was that that should not be the senior metric. That's not the goal anymore. The priority is raising. We are okay with having a 90 percent occupancy rate. Because we're pushing the rents and, and they go, and we can do that for a majority of the places. And so people just don't have a choice.

They eventually have to go to one of them. And here's the part where I'm like, yeah, they definitely got themselves into trouble is real page terminated its relationship with landlords that rejected its recommended rents more than a fraction of the time. And so I'm like, yeah, that's where like. To me, like, yeah, that's the problem right there and say, if you're not going to play our game, you can't play.

Right. And, and they did a good job of it. Like I said, they were able to raise their rents by 53%. And then I did some interesting math. He was like talking about Phoenix and Sacramento and how their rent hikes were especially pronounced raising rents from like raising rent 76 and 86%. And there's like from 2016 to 2023.

Okay, that's yes. That sounds astronomical, but I mean, it's not like,

Jessi: yeah, it's, it's,

James: it's a lot, but I'm also like, oh, it's yeah, it's, it's a while, but whatever.

Jessi: Which what's the average. Rent increase over like year over year.

James: Well, in Oregon it's over 10%.

Jessi: Right.

James: So kinda like, which he gets into some of this and we'll talk about some of these other issues where he talks about rent controls.

I'm like, I, you actually get the same effect. Mm-Hmm. as you do with RealPage. 'cause essentially the government says, here's what you can raise the rents at. Right. So I guess what everybody does, that's

Jessi: what people do.

James: So he has a solution to that as well though. Hmm. So here's his conclusion though, based off of like.

Going deep on the real page thing. It goes left to their own devices. Profit motivated landlords will not provide the quantity of housing needed to meet the supply shortage. Rather, they will undertake the profit maximizing strategy of colluding with each other to raise rents and hold back supply. So I was like, I guess in some ways that's a fair statement.

Cause when landlords had the option to use that software, they did. I guess it's very mean though. He obviously does not like landlords. And this is part of his, like, this is the problem. Landlords with the help of the software, which eventually will go away because they're getting sued and it will all stop.

But landlords are not in it to help society. They're in it to help themselves. And fundamentally, shelter is a human right. And so landlords slash whoever's in control should should value helping out the community more than making money.

Jessi: I just kind of feel like he's getting his correlation and causation kind of mixed up a little bit here and it's like, is the landlord the problem or is it this software management that's the problem?

And I get that there's a mix of both. The software

James: is definitely a problem, but it's the landlords who willingly adopted it.

Jessi: Well, yes, but not a hundred percent of the landlords. I mean, even in that example that you gave, like real page. kicked landlords off or said, okay, we're not going to partner with you if they rejected their, their rent increases.

So if a landlord was like, hey, I don't really think that I want to raise rents. Like that's not my priority. Realpage was like, okay, then don't work with us. So there, that is the problem. I think too, like, it's one of the problems. It's

James: funny, like he talks about how there's, there's high switching costs, right?

It's not just easy for a tenant to pick up and move somewhere else. Like the same as, It is not easy, like, I'm just going to switch to a new piece of software. Oh my gosh, I did that once. I switched to one. I did my due diligence and then they changed some stuff in the software and messed stuff up. And I was like, no, I can't do this anymore.

And so I switched and I did it like nine months later. And oh my gosh, all my tenants are like, what are you doing? Just pick something. I'm so sorry. Yeah. I'm sticking to this one for real.

Jessi: Payment methods, different tracking methods.

James: Yeah. So I like, he doesn't fully appreciate that part of it as well. You know, real page had other benefits that they wanted and yeah, they were making more money.

And they had a really compelling offer. Yeah. Yeah. Yeah. I don't know. I, I also am like, there's so many landlords that are just like their mom and pop shops out there. Right. They go, cool. I'll make more money. It sounds great. They probably help them set it up. And like, there's a whole bunch of stuff that they were probably doing to help out.

And yeah, so he does go on to say, So that's like,

Jessi: landlords have control

James: and they act monopolistic and they're How did he say? He doesn't say the word greedy, but it's heavily implied. They they are profit maximizing individuals.

Jessi: Well, and I think that you gotta zoom out. Cause the bigger problem that he has is that he believes housing shouldn't be a business.

He believes housing should be just given. It's just a necessity. That's his like,

James: water, electricity. It should be like a utility. What does it cost to deliver it? That is what it should be. And some of his solutions get to that. Yeah, that's the fundamental. And I think that is that right there. And you said it really succinctly is the fundamental divide.

If you, do you believe this is a right and should be provided at cost and at like whatever minimum you can, as long as you're hitting the bar of acceptable quality, again, think water, think electricity.

Jessi: Which that's another debatable.

James: And versus someone who says, no, I'm like, it's a private sector. It's okay.

And people are trying to figure out solutions to all that. I mean, it's like, in some ways it's very similar. I always think about this with the self driving car debate where it's like, had self driving cars been invented today, our roads would not exist the way they are at all. So instead. They're trying to get the self driving cars to drive on roads that are not designed for self driving cars and really like, and it's a super hard problem to solve, right?

Like, again, if cars were invented today, we would just have essentially like, they'd look like train tracks and it'd be super easy to be all solved, but we can't do that. And so this is the same thing, these solutions he's going to come up with. He's like, so we have a system where everything's kind of, it's, it's whatever you want.

So can we try to add some structure? And it's like super messy and it's like, ah, man, I don't know if you're ever going to get there. Right. So what he talks about is what the private sector can and can't do. So there's a there's a new acronym. Have you heard of NIMBY? Not in my backyard? No. That was really popular with like Power plants on a day that like they didn't want to put them in like neighborhoods or whatever, or different types of schools or prisons.

And people would be like, not in my backyard NIMBY. Well, now it's a YIMBY, yes, in my backyard. And I know. And so he says that there are people who are, who say that zoning rules are a primary, if not the primary cause of the present housing crisis. And essentially it's saying they prevent the construction of duplexes, triplex, other.

housing, right? And he's like, and it's I guess there's a slogan that's called legalized housing is what they're calling it to try to enable

Jessi: more multi units.

James: Well, he's saying, this is what some people say this is, Oh yeah, a hundred percent, but he's saying that people claim that the problem, why we have a housing crisis is because you can't build more multi units everywhere.

How does that

Jessi: make any sense? If he, landlords who are owning these multi units are the problem. Like he just thinks each individual is going to create a multi unit for themselves and then they're going to live in it and not rent out the other unit. No, he's

James: making the argument that this doesn't solve the problem.

So we're still in the problem. Like you think this is a solution and it's not, is what he's saying. He actually goes at it from a very different angle, but I like your thinking there. He goes, look, we need more, we need relaxed zoning rules. He goes, it's necessary, but not sufficient. And he goes, they've done some studies and what they found is that it results in like a 0.

8 increase in housing supply. He's like,

Jessi: not a ton.

James: It's not nothing, but it's not what we're looking for. I thought this was super interesting though. His argument for it, which I was like, okay, I buy this. When you make more flexible zoning, it suddenly makes the land more valuable.

Jessi: Yeah. Right. Because you have more options.

James: Yes. And he goes, so what happens is, this is so fascinating. He goes, when that, whoever owned that home, that land that used to be for a single family home is now zoned multifamily, he goes, they're not dumb. They get it. And so they charge more for it now when they want to sell it. So any opportunities in there to go buy a cheaper place to have that land and then build a multifamily, he goes, it's all built in.

It's like, so it doesn't. It never solves the affordable housing side of the equation. And I was like, huh, that's super interesting. Yeah. So it says in many places, expectations of inadequate profits, not zoning appear to be the primary constraint on further housing construction. Which I'm like, yeah, a hundred percent.

That's why I don't take on a project. I don't have to, I don't go like, man, zoning is kind of unfavorable. I'm like, no, I can't make money off of this. I'm not going to do it. Right. And so I'm like, yeah, he's a hundred percent true. And he makes this, this other observation, which I have totally seen as well, is that what happens is when they do build, they build luxury units and focus their efforts on the affluent because the marginal cost.

I'm building a really nice place is not that much, right? No matter what you got to have a foundation, you got to have the walls. And if you add 200 square feet to a place, it's actually relatively cheap because it's mostly air. And, and so, and then you're just better, just put in better finishes. And he goes, and that's.

And you can charge significantly more. And so the problem is that the people selling the land, they know all this. And so they price it in such a way where the only option the builder has really, if they're going to make money is to build a luxury place, which again, his argument would be when then we need to get rid of the, I want to make money.

Part of the equation.

Jessi: Yeah. The priority would have to be hang on for it. The priority would have to become making housing available.

James: Yeah. Not making money. And I think this is one of the other tensions that they has is he says, look, higher land values are good for current landowners or homeowners, whatever, but they're not good for tenants or people who want to buy.

Jessi: Yeah.

James: And so you still have this. It's this tension, you know, yeah, we do want homes to go up, but, you know, not too much within reason. Yeah. And it's one of those cats already out of the bag. You know, if, if housing prices have gone up dramatically, no one really wants those to fall. So it's hard. Let's see here.

Yeah. And I think, I think one of the things that happened. In the zoning piece was people forget that markets are dynamic. Oftentimes, I think this happens a lot. Lawmakers make a rule and they go, things will stay the same. They're assuming it's all static. And so we've kind of, we forced them down this path and go, nope, it's not.

People react. It's like, who would have seen outside of in retrospect where it's like, oh yeah. I guess this slide is more valuable. Yeah, you're going to price it higher. Of course. That wasn't like they were assuming a static market. Prices would stay the same. It would just be more options. And now more developers would want in.

Which you would

Jessi: think. Like there would be market analysts and, you know, psychologists or something working together to figure this out.

James: Maybe. It's one of those weird, that's hard to like intellectually think through. It really requires like

Jessi: case studies,

James: Just a bunch of people all doing their own self interest thing, you know, let the, let the community do its thing where you go what do they call it?

It's wisdom of the crowds kind of thing, or it's the crowd is the one who goes, nah, all right, here's what we'll do. And it's one guy kind of has an idea and you just kind of, and eventually go, oh, okay, this is the game. It's super hard to figure out. So then he goes, so that's the problem with like, Let's relax the zoning rules, which is more of a, we'll let the private market figure it out and he goes, it just doesn't work.

So he's like, let's go the public route. How can we solve this? Which is his ultimate argument. The first thing that he wants to see happen is stronger public governance. So enforce antitrust laws and real estate entries. And he goes like real page. Yeah. Okay. I get it. Which again, I'm like, System's working.

Like, yeah, that's what they're doing. They wrote the rule. They're following it. He then goes on to say like, I don't know. It's, he's trying to say like, it's not good enough. You need to do more. Cause one of his things, he goes, now landlords have all learned, like they've seen what real page did and went, Oh, okay.

I'll just keep my rent a little bit higher, except lower vacancy rate. I actually make more money in the long run. I go, so bummer, you know, like, so even suing them and not letting them do it. Mike. That the strategy has now changed. I was like, yeah, I guess. But that's his first one. Get after those illegal stuff.

That's the only one that he mentions though. So there's that. On the outside of, he does say that there's some like neighborhoods, CC and R's and HOAs that will create rules that effectively are zoning rules that he's like, we need to get rid of those. He then says rent stabilization laws are really important.

Rent caps, which we in Oregon, he describes what we have here in Oregon. You got to prevent them from raising rents more than the rate of overall inflation. So I think that's one of those, like, so we are inflation plus seven, capped at 10, and he would say, get rid of the plus seven and maybe cap it at five, that's the, which I think in New York, I think that's what it is.

Which,

Jessi: which Effectively would just make your business grow really slowly. No,

James: it would make your real growth zero. If all you can ever do is raise rents by inflation, you're always just playing catch up. And then the only game that you're going to try to play is that there's a gap between your revenue and your expenses.

And if they both grow at the same percentage, in theory, the expenses are a lower number. So you get like a little bit extra growth in there from a profit standpoint. But it's not

Jessi: a really good business structure. No, it's

James: not. It's not. The only strategy for that kind of thing is to do what we're doing today, which are you do flips, you do quick turnarounds, you, you do a syndication where you're doing a value add, and then once you're done, you sell it to someone else.

Who's not looking for that profit growth. I mean, that's, that's becomes your only full time type of option. Unless you've already just hit an income level where you're like, whatever, I don't care. It makes it no longer as advantageous as a buy and hold. Which he goes, great, I don't want you to buy and hold it.

I want you to sell it. I want it to be a public good. I want it to be at cost. So he's like, yeah, that's, that's what I want. He wants to destroy the type of business that we have, again, outside of like doing the quick turn stuff.

Jessi: Hmm.

James: Yeah.

Jessi: I wonder, does he say anything in there about like nonprofit organizations that.

provide housing or provide subsidized housing.

James: Hey, Tyler talks a little bit about that in a little bit. Cause it's kind of like the public route, but yeah.

Jessi: Yeah. It's kind of, that would be interesting to me because it's like, all right, real estate is a business. Like it just is. You can't say that it's not today.

It is

James: where you could turn anything from a business to not a business.

Jessi: You could,

James: and, and vice versa. I mean, that's what they did in the airline industry used to be all heavily regulated and then they deregulated the entire thing. It was very messy.

Jessi: Now it's just private airlines

James: competing with one. So that was, that was an example of what the other way.

And again, he's making the argument for that. That's what should happen. And look, there's pluses and minuses to everything, right? Like, yeah. Having it heavily regulated, having it be. Essentially treated like a utility. There, there are nice parts about that, but you know, in the sense that, yeah, for the most part costs are controlled, but I don't know, like, do we all love the way our water system works and electricity?

It's kind of functional, but also not. And there's really nothing you can do about it. You can't just be like, I'm out. I'm moving. Like, that's not a thing.

Jessi: Well, here's the interesting thing though. I was thinking about this a little bit earlier because it's like, yes, we There are basic services that we get, we get, we can get city water, we can be on the water, we pay for the utility, but if we had the means and wanted, like, which it's good, it's good enough, you know, for most people, if you had the means and you wanted to get purified water at a purification system, you could, and you could have it better, quote unquote.

And so, Or you could add solar panels. Water

James: is a commodity. It is the same for everybody and housing would eventually become that. Right. It would just become the same for everybody. And it would be very boring and which maybe that's okay.

Jessi: Well, but wouldn't it still exist for certain people who wanted luxury homes to add on or increase or get better?

James: Probably not over time.

Jessi: Really?

James: No, I don't think, I mean,

Jessi: Cause I mean, there's plenty of people who buy bottled water or do whatever they're

James: doing. There would be a transition period. Yeah, but like, that's a fraction of a fraction of people.

Jessi: It's probably more than you think.

James: I doubt it.

Jessi: Huh.

James: Versus just getting water out of the tap.

Oh my gosh, if you were to count the number of gallons, it's not even close.

Jessi: Yeah, that's true.

James: Cause even people who buy bottled water, like, they're still using shower for like, for shower water, for dishes, for laundry. Like, I

Jessi: More than likely. Yeah.

James: Oh my gosh. It's so much. So I, it would just, it would all become a commodity is what would happen.

Huh. And again, he might be like, cool, whatever. Now we have to get into, well, how do we define what the commodity is in the same way that they have water testing Like this water is deemed good to eat. Yeah. How do you

Jessi: or drink, how do you say it's good enough?

James: Yeah. Which I could be an issue. Hu has certain standards and there's a whole transition process.

And that's my whole thing of like with the self-driving cars. Right. It's like, how do you fit it into the ING system? Mm-Hmm. Where houses are all different than individual. Yeah. You know, if you were to start over today, you'd be like, yeah, whatever, here are these squares. There would be a baseline. Sure.

But we don't have that. And so now, who do you get to choose who lives where? It's like, it's so messy. Yeah. And, and, yeah, it's very messy. Yeah, so he then goes on to talk about some public planning stuff. Oh, he actually talks about, like, water. Oh, no, no, he's talking about water and sewage. How, if you're building willy nilly, it could be an issue.

He says, effective planning requires that decisions be made jointly at the regional, city, and community levels. system of layered co governance. I heard that and went, that sounds so miserable. Could you imagine? Like, okay, that's

Jessi: like a lot of red tape.

James: So we're looking at a property and we just want to split the lot because there's currently two houses on there.

Jessi: Yeah.

James: And we just want, we just want to cut it down the middle, whatever.

Jessi: Yeah. Could

James: you imagine if it was like, so I called the city. It's like, hey, I just want to see if I can do this. I'm like, yep, no problem. Here's the process. Here's what you go through to do it. It looks like it could qualify. Like, awesome.

They did say, there's a question about the well that's on there. You should call the county to find out. Called the county and they're like, you can do whatever. We don't care. I was like, awesome. Love the answer. What he's saying is then, I would then talk to like the community level, there'd be like a state level.

Like. Yeah. Yeah. Yeah. You know what I'm saying? Yeah. Oh my gosh. You add two other groups here. The red tape. Are we all going to get aligned on this? You now

Jessi: have to

James: have a say in this. This layered co governance. That just sounds so miserable to get stuff done in. I

Jessi: mean.

James: I get his point where once you could all agree, if you could all agree, yes, it would probably be optimized.

But I have a hunch, like, if you think the permit process is slow now, oh man. Yeah. That would be crazy. It would be miserable. But I get what he's, I get what he's saying. He also goes like, and as we do some more zoning reforms, we need to do it in such a way where we don't create easy profit opportunities for spectators.

Like, okay, how are you going to do that? He doesn't say, he's just like, we just need to do that. Like, cool. I just, good luck.

Jessi: Like you're saying in a, in a capitalist nation that we currently exist in, that, that's, it's, Anti what most people, how most people function.

James: I have a hunch that he does not like the capitalist system.

It would be okay if we did away with that.

Jessi: Right.

James: But, well, if you're talking

Jessi: about public goods, that's not capital.

James: Yeah. He then, I mean, he even goes as far as to say like, so are coasts, right? Are big cities. A lot of people live there and he goes, and you might think that that's just because, well, that's where how does he say it?

It's simply they're productive cities and so they've just got the lion's share of the labor and there's good weather and like things like that. People just want to move there and it's like, no, no, no, no, no. Again, this is his perspective. He goes, it's more monopoly power where it's the largest firms and the powerful people are all there and they're forcing everyone to say, you have to come into the office, you have to live nearby.

He's like, and there's things like Silicon Valley. Or they had defense contracts and publicly funded university research that helped them become big and lock in this monopoly. So he's even like big coast, big, like the big coast cities goes is also a direct result of big corporations, forcing people to live near them.

It's like, yeah, that was kind of my, like

Jessi: a little conspiracy theory esque. Yeah, I guess there's some of that came across as like,

James: I don't know. It's one of those like, maybe he's a renter and he had his rent increased on him recently. He's just super angry about it. I don't know. Yeah. I don't know. I mean, what happened to you, dude?

He's got a kid where that's what's happening to him. I don't know. So he then gets into social housing and this is more of what you were talking about, where he says the public sector should build and operate housing. Now he does say that it happened and because of some things that didn't go well, it didn't end well.

And he's like, so it's been stigmatized. And then he kind of goes, but it can work well. And he cites some places like Singapore and Vienna. And then Montgomery County and Maryland. But I was like, I've been to Singapore. A it's a city state. It's the entire state is a city. Yeah. And B it's run by a benevolent dictator.

I'm like, I don't know if that's an apples to apples, which again, I think further leads to my, like, I, I think he wants to, like, if he could get rid of the capitalist side of real estate altogether, I think he would, he wants it to be like Singapore where it's like, honestly, A dictator owns everything. And he's like, yeah, you guys can live there.

You're welcome. Like, that's what he wants. And I'm like, huh. All right. And he goes, one of the things it could do is it could supply decent housing. Again, that word decent is very fluffy in my opinion, but it could provide decent housing for poor and working class households. And I thought this was a fascinating kind of thought as well.

It would impose competitive discipline on private rivals. So if, you know, if I'm building a place. And I know that there's a big housing development that's going in that's going to be affordable. I'm going to not just try to build the best of the best. I would try to build more affordable as well. It's kind of theory.

I'm like, ah, wouldn't it just make it a hundred percent private would be luxury. I feel like it would just split. We can take care of that. Yep. Be just a new form of a, of a, of a split.

Jessi: Right. Cause if the developer was still in it as a business, they would want to maximize their, Yeah, revenue. So,

James: but that would be his like, he's like, don't worry about it.

We can just learn from the lessons we had in the past. Let's copy some of these other places. And does

Jessi: he talk about any of the issues that went down?

James: Yeah, I mean, a little bit. He says there's, there's some racial stuff in here as well. He goes due to a combination of federal and local policy, white flight and de industrialization, some of this housing became shelter of last resort for many poor black families.

And a bunch of them got destroyed as a result. And yeah, but he's also like, but it's just, it's distorted and it's not real. Like it's like incomplete history. And and I've, I've heard some of that. I'm like, yeah, I, and it's, I think it's one of those words like, yeah, these are massively complex projects.

So. Yeah. It turns out everything that went on was massively complex and everything's like, Oh, well, it depends. It was a little complicated. And when people try to simplify it down into a single, single issue, try to wrap your head around it and you go, yeah, it's incomplete. Yeah, I know. Cause you can't capture it all.

Cause well,

Jessi: and really, I mean, yeah, what, what that touches on and what we've experienced in, in having units working with residents, it's, it is a multi layered. process to work with human beings, you know, it's like, it's not just, this is a human being, they deserve a house. It's like, well, are they going to take care of the house?

Are they going to like, what are they going to do in that house? You know, who's going to pay if things get broken or used or broken or well, you know

James: Yeah, and it's like it's very rare You get a simple situation where it's like a tenant just goes I don't feel like paying my rent Right way more complicated and I think it's same thing on the other side if a landlord's like I'm not gonna fix it It's not just I want to maximize my profits right in some cases in a lot of cases They actually did pay too much for the property and now they don't have the money to actually do the repairs.

And like, I, I just can't fix it. I'm so sorry.

Jessi: They're over leveraged and

James: yeah. And that becomes a problem. And that happens a lot,

Jessi: which

James: I'm, I don't know. What are you going to do?

Jessi: Yeah,

James: super hard. So I thought that was just an interesting article on his, like, to me, some of the more thought provoking things were like, okay, we've talked about the zoning stuff.

He's like, it's not the panacea that you think. And, and for me it was particularly eye opening to be like, Oh yeah, I could see how prices would adjust for people real quick because the land is now more valuable. I thought, like, he talks about the, the rent caps and making it harder to evict tenants. To which I'm like, Yes!

Let the rest of the country catch up to Oregon because it would make Oregon more valuable. Because right now, Oregon, investors don't like being in Oregon because of that rule. But if it was across the nation, dude, Oregon would like explode all of a sudden. Cause people are like, Oh, why not? And so I'm like, yes, please do it.

That'd be so amazing. Oh, that'd be great. Since we're already there. Oh my word. That'd be so, I don't think it'll ever happen. And then I think the other just intriguing piece behind it for me was just that like, at least thinking about what could those public projects potentially look like? Is there a way to do it?

That isn't that is successful and, and my guess is this is one of those hard things where it's like, I, my guess is you can't actually do the massive projects. It's got to be a whole bunch of little projects, which are really hard because you want to do the ones where you're like, we're going to add 3 million houses this next year.

Like, yeah, I think the answer is like, you're going to add 300 million every single year for the next 50 years. Yeah.

Jessi: Yeah.

James: Like that's the answer. That's a sustainable thing that you can do in such a way that it works.

Jessi: Well, and, and like you're saying, it's a dynamic system. So as you're doing that in smaller chunks, it's going to change and mold and shift.

And you'll learn hopefully

James: where

Jessi: to improve and what to let go,

James: which is just

Jessi: hard.

James: Well, it's hard too, because you're not going to have necessarily government contractors. They're going to hire private contractors to do it. Who will have the pricing. Yeah. I it's, it's so complicated. It's complicated. Yeah.

I think it's fundamentally with a question. That needs to be wrestled with is, is housing a fundamental right and should it be treated more like a utility where we give it away as much as we can at cost and the same for everybody because that's the best way to do it at cost. And I don't know, I've, I mean, obviously the way that I behave and live my life, I'm like, I don't want that to happen.

Right. Right. Right. But I'm like, I'm also like, you know, if this disappeared tomorrow, like there's other opportunities in the world, other places for me to add value, that's okay. I'll survive. Yeah. But yeah, it's an intriguing, like, how do you just balance out some of those things? Yeah. And I guess maybe a good thought exercise would be if you were to start over today, like we're just, We wipe all the houses off the map and you get to kind of get into God mode and start over.

What would that look like? How would you structure it in such a way? I think there's something to be said about the beauty and creativity behind all the different housing and housing types and people have different housing situations. house for us right now is awesome. We love it. We've got friends who'd be like, Oh my gosh, that would be horrible.

I'm in a neighborhood.

Jessi: Yeah.

James: You know, single story only it's only 1200 square feet. Like, you know, it was struggle. So

Jessi: housing needs are different. You

James: and I, like if we were given a 2, 500 square foot home, we'd be like, I don't know what to do with all this. I'm sure we figured it out. But like we think about like, how hard would that be to clean?

You know, like that's where our head goes. So there's something to be said.

Jessi: I know. Right.

James: And so I just think that. Like there's, it's good to have the variability and maybe there is some weird middle ground there. I don't know if I ever find it, but I

Jessi: think there's another huge issue here that we haven't even touched on, which is like, maybe this is another podcast, but it's the idea that there are other needs besides just, yeah, that's like, okay, for someone to be able to get to a place where.

They can function and live in a home and like take care of that home at a basic level is like, okay, we're talking now about like mental health or drug issues or like, you know, there's, there's different issues that affect housing.

James: Yeah. I guess that's kind of that same issue when they talk about people winning a lottery, they're not ready for it.

And. And they just don't handle it well. And they actually are in a worse spot when they started. Could there potentially be the same thing if you're like, just to make housing public and just give it to people?

Jessi: Right. It's kind of like, I don't know. You know, and we've kind of had different thoughts about like, you know, there's ideas of like halfway houses or like community living where you're learning together and there's accountability and it's more than just, we're giving you a place to live.

James: Yeah. Yeah.

Jessi: But I don't know

James: what if there's something like, so I'm on the, I'm on the board of a nonprofit here called loving and they come aside, people come alongside people, right? They don't just do handouts like, man, we want to like, we want to be with you. We want to walk with you. And like, for example, some of the things they do is they do classes with people and what they do for their clients is they have incentives.

So if you show up to the classes, you also get it. Some hand out to you types of things. And, and, and in some cases like, yeah, we're going to hope you pay for this thing. You pay 50 percent we'll pay the other 50 percent but there's, there are like, there's things that they have to do. They have to, the person needs to be just as involved.

Yeah. And, and that's, and if they're not like they don't give it to them, you know, they go, man, let's talk about this. Let's see where we're at. And so I wonder if there's, there's a broader model for that. Cause like what you said there, like if someone isn't. Able to afford a house. You're making the assumption, observation, whatever that well, there's other reasons why they can't afford a place.

And he goes, yeah, because evil landlords are jacking up prices. That's his, in

Jessi: some cases,

James: and he goes, the, the person who can't afford is the victim. Yeah. They're the problem. Like, they're not the problem. The problem is the landlord. So he's coming up with ways, like, how do we knock the landlords down? And your head is more like, how do we raise these people up?

Yeah. And which again, are just two fundamental ways. Two fundamentally different ways of seeing things. And it's probably a combination of the answer is somewhere in the middle. Yeah, sometimes it's that, sometimes it's the other, sometimes it's a little bit of both. Yep. Yeah, which is what makes this so complicated and why there isn't a People are complicated.

Yeah, I do, I do appreciate his, Just the irony of him talking about how, like they try these simplistic solutions and he's like, here's my three things. I think the same rule applies, man. It's a whole bunch of things. It's not going to be this or that, but I think it's interesting and I think it's important for us as, as investors to think about and not just ignore and to say, maybe on a micro level.

How do we do our part to make sure we're not just seeking profit maximization, but we are also improving communities. And part of that is figuring out how to make housing affordable for folks. And I think that's, that's a tension that is worth wrestling with. And I think like, these are things that I think about in my business and how I'm investing.

And yeah, in some cases I do forego the profit piece. I got some tenants. I'd let them stay even though they're not paying the rent consistently and I work with them and Someone's it's very painful to do it and and I'm okay with that Yeah, saying yeah, I would probably make a lot more money if I just kick them out right away and then moved on I don't even charge him a late fee because I'm like, dude, they're struggling to pay the rent like why the world would I?

Jessi: Yeah Why the number bigger

James: and so so there's like but I could yeah, I could And, but that's the choice that I've made to say, yeah, no, I think as long as they have a place to live and this may not last forever and it probably won't because eventually it will become unsustainable. I can kind of see where it's going, but at least for now, for this next month, they have a place to live and I'm okay with that.

So I think it's just important stuff to wrestle with. So there you go. If you enjoyed wrestling with that, with us we would appreciate it. If you left a rating, wherever it is that you listen to podcasts, and if you are interested in learning more about investing with us. You can check us out at furlo.com. Thanks for listening and have a great day.