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Opinion: NJ real estate industry broken

Matte Jr
Opinion: NJ real estate industry broken

3 minute read

Murray Sabrin
| Special to USA TODAY Network

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The Assembly Housing Committee met in late September to discuss the state’s unaffordable housing market.

The committee hearing could not have come at a better time to address the issues that contribute to housing price and rent inflation. The Garden State has some of the highest housing costs in the country, and residents have seen their real incomes decline as housing prices and rents have accelerated sharply in recent years.

According to Zillow, the average price of a rental property in the state is $2,500, nearly 20% higher than the national median.

In general, rising prices are caused by the Federal Reserve’s “easy money” policies. The Fed created several billion dollars in response to lockdowns during 2020 and 2021 to rescue workers and businesses. Not surprisingly, consumer prices rose 9.1% in June 2022, the highest price inflation in more than 40 years.

The residential real estate market was one of the main beneficiaries of the Fed’s policies, which drove the interest rate on 30-year mortgages below 3%, triggering a boom (some would say “bubble”). Rents rose well above wage increases as rising house prices forced young people in particular to rent rather than buy, thus increasing demand for apartments.

As a finance professor, I have studied the impact of Fed policies for decades and the evidence is overwhelming. Rising prices are the inevitable result of flooding the economy with trillions of dollars. That said, a misguided response to these higher rents in New Jersey – price controls – will only make the situation worse. City after city that has implemented rent controls has revealed that local and state rent controls reduce housing supply and ultimately increase rents in the long term.

Rep. Yvonne Lopez, D-Middlesex, does not appear to have received this memo. She recently introduced legislation targeting software that helps landlords charge market prices based on supply and demand.

Like Kelley Blue Book, this real estate software collects data on rental prices in each area, helping owners understand the market conditions they face and price their units accordingly. However, Lopez accuses these companies of keeping prices too high and she is not the only one making this accusation. The Biden administration has made similar claims.

As the Wall Street Journal Editorial Board recently explained, blaming software for high prices is akin to shooting the messenger.

Software companies do not cause inflation – they only inform you about current market conditions. In other words, landlords are engaged in “price discovery,” a basic desire of all businesses, especially landlords, when obtaining rental information in their market area. Consumers also want to “discover” the best bang for their buck through price comparison – their price discovery journey.

If rental pricing software informs landlords that the rents they are asking are not supported by market conditions, then their apartments would remain vacant until they lower their rents to attract renters. However, landlords who do not lower their rents will be able to offer “concessions”, such as two or three months free.

Ironically, the New Jersey state government uses algorithms like those Lopez seeks to ban. For example, when New York proposed price increases on tolls and bridges in New Jersey, our politicians protested until the Empire State agreed to share the revenue. If algorithmic pricing is such a big problem, why is the State benefiting from it? Instead of banning housing price guides, the Legislature should create market conditions that encourage more construction.

Opinion: New Jersey passed a strong affordable housing law — but now we need strong new regulations

New Jersey may not control the Federal Reserve’s press and the federal government’s spending habits, but it does control the out-of-control housing regulations that the Garden State currently has in place.

Unreasonable zoning regulations, licensing mandates, and costly delays in the building approval process contribute to the state’s inflated housing costs. These barriers make it difficult for developers to introduce new homes onto the market, which worsens the shortage of supply and keeps rent and housing costs high.

Ending or mitigating these regulatory burdens could significantly help increase housing availability and reduce prices. Banning tools that help owners understand the market conditions they face won’t do it.

History is already littered with hundreds of examples of failed price control schemes. New Jersey does not need to add another chapter to this book. It needs to turn the page and implement data-driven solutions that are proven to work.

We hope the state’s elected officials are up to the task.

Murray Sabrin, Ph.D. is professor emeritus of finance at Ramapo College of New Jersey.

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