Proposed federal legislation could be costly to apartment owners

 

Generation Y, baby boomers and immigrants may be the key to filling the vacancies in the multi-family housing industry, according to the director of Political Outreach for the National Apartment Association.

 

“The demographics in the country are going to catch up to our industry in the market,” Irica Solomon said as the keynote speaker at the 2009 Multi-Family Housing Conference sponsored by the Utah Apartment Association. The three groups, which are large in number, will be looking for places— particularly rental units — to live, she said. She also suggested that many people who took advantage of the financing frenzy realize now that they cannot afford to live in a large home and will show new interest in the multi-family market.

 

But in light of recent proposed federal legislation, filling the vacancies in the multi-family housing market is not the only issue currently facing members of the Utah Apartment Association, Solomon said.

 

Solomon spoke Thursday at the Hilton in Salt Lake City with Gary Harter of the Utah Governor’s Office of Economic Development, Jed Millburn of Apartment Realty Advisors and Craig Russell of CW Capital about the turbulent financing and real estate market and how it impacts the multi-family housing market. She addressed such proposed federal legislation as the cap and trade bill, labor reform and carried interest tax, explaining how it could impact multi-family housing.

 

The American Clean Energy and Security Act of 2009, an energy bill that would establish a cap and trade for greenhouse gases, is awaiting approval from the Senate. The bill, if approved, could increase utility costs in Utah, a coal-dependent state, by 200 percent, Solomon said. It would also require that new construction be built with increased energy efficiency, she said.

 

“What this means to you is that you have to cut costs elsewhere,” Solomon said. “As property managers, your tenants are the ones using the electricity. Our industry represents 70 percent of all of the electrical energy being consumed by commercial and residential buildings.”

 

The increased utility costs will be shouldered by landlords, as those costs are not supposed to be passed along to tenants, Solomon said.

 

Apartment owners will also shoulder additional costs if the Employee Free Choice Act passes. This labor reform bill would allow unions to form when more than 50 percent of a company’s employees have signed authorization cards. The organization of unions could cost employers of metropolitan areas slightly bigger than Salt Lake City $17,000 per employee, money that goes to the union, not the employee, Solomon said.

 

“You should be very, very afraid,” Solomon said.

 

Solomon suggested that owners of multi-family housing projects should also fear proposed changes to taxes on carried interest. She said the Obama administration is considering taxing carried interest as ordinary income rather than as a capital gain. If the proposal passes, Solomon said it could triple the amount of taxes paid by general partners of private equity and hedge funds and its impact could be devastating to the real estate industry.

 

“If this gets passed, people will be less apt — even including this economic crisis — to get involved in real estate deals, which hurts communities on the local and state level,” Solomon said. “The estimation is it will cut one third of development nationally … Which also will cut by a third your sales and property tax revenue.”

 

Solomon also addressed such issues as immigration and health reform. She encouraged members of Apartment Realty Advisors and of the multi-family housing community to get involved in politics, especially with those items that directly affect their industry. She suggested visiting the National Apartment Association Web site or emailing her to stay current on what is happening on Capitol Hill.

 

“If you are not involved and if you’re not aware of what is going on and you don’t call me all the time, you sort of miss out on what is going on, and you have no one to blame but yourselves,” Solomon said.