Not Your Average Investor Show
Not Your Average Investor Show
434 | How The New Executive Orders Impact Housing - Not Your Average Insights
Our show has zero political spin, so we've tried to avoid this topic, but it's very clear:
The new executive orders have taken aim at housing, and our community wants to discuss it.
That's why we'll be diving into them to add our own data + perspective on this week's edition of Not Your Average Insights!
Join Gregg Cohen, co-founder of JWB Real Estate Capital, and Not Your Average Investor Show host, Pablo Gonzalez, for a lively discussion on this context change for real estate investing, including:
- How a new housing council will change the way affordable housing is brought to market
- What the new administration is proposing to increase the housing supply and mitigate the affordability crisis
- Why the emergency price relief orders could put the average property manager into financial trouble
- and much more!
This is a sensitive topic for many so we are going to leave politics aside and stick to what we know: the rental property investing market.
Listen NOW!
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today. I'm staying home cause I'm a little under the weather, so I didn't come into studio, but today it's, it's unavoidable, right? All these, um, these executive orders, this new administration, there is just way too much talk in the ecosystem about this and how it's going to affect the economy and whatnot. So it is our duty to come on this show and discuss. How we believe this may or may not affect housing prices, the housing market, how the outlook for real estate investors add a little bit of a, add a little bit of perspective, but I will ask the community that we do not. want to add political perspective here. We are specifically speaking about, you know, how based on our experience, this may or may not affect the housing market. So be kind to us. This is an apolitical show. All right. Welcome. Welcome. Welcome everybody to a very nervous edition of the not your average investor show today. I'm your host. Pablo Gonzalez, with me as always across the screen this time, live from JWB Studios, the man I affectionately like to call GC, because of his genius concepts, because he knows how to generate cash flow, because he's a great co host, and because his name is Greg Cohen, say hello, Greg.
Gregg Cohen:Hello, everybody, fantastic to be with you today.
Pablo Gonzalez:Fantastic to be with you, my friend, I see the attendance ticking up as we knew it would when we bring up a topic that everybody is talking about. Um, GC, you said we got an update on the summit. We only got seven tickets left. Tell me more.
Gregg Cohen:This many, buddy. This many. We have seven tickets left for summit. We're super, super stoked to have everybody here. As you can see in the chat we're not the only ones. This is the Not Your Average Investor Summit. We do it once a year. It's our opportunity to come from beyond this wonderful Zoom. And online and social community that we have and to get to make even more deep friendships get to meet the JWB team, get to see the JWB investments all along the backdrop of what is going on in downtown Jacksonville. You get to be in the room with folks that are investing billions of dollars and with other officials that are making large scale decisions on what is going on in downtown Jacksville. You get to be there. It's a, it's going to be a room like no other. So we hope you guys are excited. If you already have your ticket, if you don't yet. What are you waiting for? There are seven tickets left and you can go to JWB summit. com to go and snag one of those seven remaining tickets. And lastly, this event is for JWB clients. And if you are not a JWB client. Yet that is okay. We still have space for you. What you will want to do is to become a JWB client by the time that summit rolls around and summit we'll be here February 28th. And March 1st, it's a two day event. So for all of our current clients, if you haven't signed up yet, go to JWB summit. com if you are thinking about becoming a JWB client and you want to take part in summit, there is still time, get on the phone with our team, set up a time to chat, and we can bring you down the path to hopefully having you as a JWB client in time for summit. How'd I do pops? What'd I forget? Three
Pablo Gonzalez:things to prepare for if you're coming to summit one big bear hug from Lee, you will get one. I hope that you are prepared for that. He gives world class hugs to, you're going to be in a room full of people like you prepare to not feel like a weirdo because you're obsessed with controlling your outcomes for retirement because you're obsessed with real estate and doing things differently. And three. Saturday night, we will host a karaoke night. You will see me sing totally clips of the heart. I've done it a hundred times. I promise you it is something to behold. So if you haven't gotten your ticket yet, there's seven left. You don't want to miss out on those three things. JWB summit. com. How'd I do Greg?
Gregg Cohen:You did well, brother. I don't think people really understand the opportunity to sing you to see you sing total eclipse of the heart. So that by itself is going to sell this thing out.
Pablo Gonzalez:Yeah, yeah, I know. Well, I mean, we'll see hopefully one day hopefully I'll get I'll get discovered through one of these summits. All right, you see, let's talk about this again. We mentioned this at the top of the call, we now have Over 120 people on this call. We know that this is a hot button topic. We, our goal here is not to be political. Our goal healer, our, our goal here is to talk about things that may or may not happen and how that may or may not affect real estate. So please be kind in the chat. Let's not be hard driving. Let's not be unfriendly with each other, but. We are willing to do the hard work for you and put ourselves in an uncomfortable place because we know that you want to talk about this thing. So, as we kick this thing off, GC, basically what's been coming down, if you're hiding under a rock administration change in the United States over the last week, since it happened, there's been a ton of executive orders that have been flying out. There have been. Policy changes that have been spoken about. We're not going to mince kind of like lines between what's a policy, what's an executive order, but we're going to talk about the big things that are that are happening right now. But essentially what this new administration has said is that it is part of their mandate to lower housing costs and increase the housing supply for the average American. That is something that we believe is good for our country and we want, we are on that same mission, right? Like this idea. That real estate making it accessible for all, including homeowners, including investors, their, you know, their beliefs, their assumptions is that they see an estimated imposed costs of about 50 K in costs for the average American household. Then can be reduced by eliminating some regulatory hurdles and getting rid of rent seeking practices. GC, I will kick it over to you right there after that set up to, for you to just kind of like, Put us on track here for this discussion.
Gregg Cohen:Yeah. Well, you know, geez since inauguration day There has been a flurry of executive orders and the one that meant the most to me given my nature of my career is this executive order that we're largely going to focus on today which called for all the heads of agencies and departments to report to the president to put a plan together and to enact changes to lower the cost of housing and to expand supply. I think that's important that it wasn't just mentioned about lowering the cost of housing. It also talked about expanding the supply, which is something we've talked a lot about in this community for a very, very long time now. And you know, regardless of where you are and where you sit and which part of the aisle you're on. I think we all can rally around the idea that housing affordability is a major problem. And we all want to put these things in place that is going to increase housing affordability. Now, the way that we do that has a lot of differing opinions. And, you know, we're going to create the platform here today to, to share. What is happening, what we believe will be the effect on housing and it will have a couple of different perspectives because the reality guys is there's still a lot to be determined here. the how it will be done and what the impact will be is something that we together get to take the ride on because a lot of that has not been determined yet and the effects of this won't be known. And the other thing guys is like none of this is done in a vacuum. So when we talk about one of these executive orders, what might that have effect it might it have on housing? Well, there's another executive order, another part of the executive order that could have a counter effect. So I think this discussion today is to be informed about what potentially can affect housing. It is not about what is right or wrong, and it's not about what definitely is going to happen. This is a complicated solution that we hope to attain as Americans. And, and that's, and I think that's where our focus should be.
Pablo Gonzalez:Well said, bud. Well said. I think you, I think you said that nicely. And, you know, there is a White House council on eliminating regulatory barriers to affordable housing that was established in 2019, you know, that plays a significant role in addressing housing affordability with its functions, including interagency coordination, regulatory reduction, zoning and zoning reform and advocacy incentive programs, policy development, collaboration with stakeholders, promotion of the housing supply and implementation, right? So there, there, there is real kind of like, there is strings attached to this thing. There is, there is a, there is levers of influence here that can take, that can take form. I would say that. That the, the hot button kind of like topics, let's just kind of like go straight into it are, are, are a couple of, are a couple of subjects, right? Like there is the hot button of what's happening with immigration and how that can affect that can affect housing. And then there's the hot button of what's happening with. Tariffs. I don't know if either of these are actual executive orders, but this is definitely stuff that's in the ecosystem that I think we would be remiss without talking about. And then we're going to go into the national housing. What is it? National housing board or something like that. And AHP Nash
Gregg Cohen:National Association of Home Builders.
Pablo Gonzalez:I'm
Gregg Cohen:more of a numbers
Pablo Gonzalez:guy, Greg, I'm more of a numbers guy, National Association of Home Builders. And their plan, right? They have a 10 point plan, which, you know, we largely support here. So like, how can all this stuff kind of like based on these executive orders and stuff be affected? Right. So do you see, let's talk about. So let's talk about the tough one, right? Let's talk about immigration. these immigration policies have sparked a whole bunch of debate regarding potential impacts on housing costs. There is talk about, you know, strengthening the border. There's talk about deporting illegal immigrants and criminals and stuff like that. And as we all know There's a heavy, heavy migrant population that, that works inside of building construction, right? So kind of like, how do you, how do you see the pluses and minuses of what's going on around immigration GC?
Gregg Cohen:Well, I think we are all hearing a lot about the supply side the effect of this and a large percentage of the work that is done in certain trades on done by, by immigrants. And the question is, will this reduce the supply or will it take longer to build homes, which in theory could drive housing costs up. So this is an example where we don't know exactly how this is going to shake out, meaning how it would be implemented. But when we talk about how none of these executive orders are done in a vacuum, The overall executive order says we are going to put in places or put in measures to expand the housing supply. One might say with the immigration policy, this might, in that small vacuum, that might actually do the opposite. If you're just looking at it from the construction supply side, because you have less available labor to go ahead and build those homes. And I think that's what's getting most of the headlines, but I do think that there are many sides to this. Potential story as well. You know, the, if we, you know, that is largely focusing on the supply side, you know, on the demand side, if this would happen and nobody knows to what degree it may happen, but there's also a demand side here. And the immigrants that that we are talking about here largely occupy those affordable homes. And so, if those folks are no longer living in those homes, there could be some demand relief here, and it could actually help to alleviate the housing cost as well. So, As with many of these things, I think there's multiple perspectives here. And I think you can make that when it comes to immigration. I think the real thing though, is nobody knows how this would be implemented. If we knew exactly how this would be implemented, I think it would be a little easier to quantify.
Pablo Gonzalez:That makes sense, man. And just to kind of clarify on some of the assumptions that you brought up, right? We are in an affordability crisis in America, right? Like it is gotten Significantly harder for younger generations to buy starter homes for lower income families for workforce income families to buy homes We've been talking a lot about the fact that it's not because Wall Street rushed into the space. They own a very small Percentage of like these homes. It's because we have been historically undersupplied in single family homes, particularly in growing cities, particularly in this like workforce to affordable demographic. So the longterm solution to getting out of this affordability crisis is increase the supply of homes, right? We're neck and neck there, right? GC. A
Gregg Cohen:hundred percent.
Pablo Gonzalez:And, and what you are referring to right now is, you know, if, if our, our take on the idea of need to increase the supply of homes is you know, if we're decreasing the labor force, that's able to build these homes, it could have a negative impact. Now, on the other side, there's the demand for the homes, right? There's the folks that, would be living in these homes. I would want to buy these homes. I would want to rent these homes. And it could end up being a wash in the sense of if the same amount of people that, you know, like aren't able to build these homes now, we can't build at a certain rate, but we also need less people because they're leaving the country because of these mandates, this could wash out or, or, you know, like it could go either way. And that's like the one thing that we really don't have like a really good crystal ball for, right?
Gregg Cohen:We, we don't. And you know, I do think that. The idea that stricter immigration policies would lead to homes not being built is, is a little far reaching, right? At the end of the day, home builders have always found a way to build homes where there's a market opportunity. I guarantee you, home builders are going to find a way that doesn't mean that it might be slower or there might be, it might. There might be some growing pains to do that, but you know, at the end of the day, home builders are in business to make a profit. And when businesses see a problem, call that home price affordability. And the solution is to expand supply. Home builders are going to find a way, regardless of whatever the immigration policy is and how it's administered, builders are going to find a way to build houses. They've done this for decades and decades and decades. And I think some of the questions that I have in my head are. How, how much of a disruption at first of all, how does it get administered if it is administered to, to the full extent what type of a disruption does it have in the short and medium term for housing supply and, and how many days does it take to build homes compared to what it did before as things would get stabilized and then. What effect does this have on pricing? Because, you know, home builders have done quite well over the last few years, especially as far as their profit margins. So, if they now are paying more for the labor, does that come out of their profit margins? How much? And then how much of that cost goes to the increase in housing prices overall? So, again, with many of these, more questions than answers at this moment. But I think it's good to look at it from all angles and see. You know, what effects it could have.
Pablo Gonzalez:Makes sense. You also bring up the idea of you know, maybe if, if there is a decrease in the labor market, right? So there's the ability of bringing houses to market and the avail, the availability of doing it quickly. There's also the cost involved, right? And we're gonna talk a little bit about cost when it comes to terrorists, but when it comes to labor force, could stand to reason. That is, you know, like if there is less labor to do this, then the cost of labor may go up. That would also increase cost of homes. If that happens as a real estate investor, now putting on a real estate investor hat, hone owning these hard assets, I would tend to think that then replacement value of my home goes up. Therefore, my prices are going to stay stable or continue to go up. If there is a slowness of the market to react because of labor. Price of homes can continue to go up. I'm still good holding on to these assets. If there's like a giant reversal maybe prices, you know, they would take a lot for prices to just completely like go flat. In order, you know, based on all this stuff to happen, or even decrease, it would really, really take a lot. What's kind of like the, the, the real estate investor hat thinking about this possibilities that you're thinking?
Gregg Cohen:If we're putting our investor hat on guys, listen, the best thing you can do as an investor is to have something that people want a lot of and that there's not a lot of supply of it, right? That's what housing is right now. As an investor, owning the asset puts you in a position of strength. Now, at the same time, JWB is committed to making sure that home prices are affordable. We care deeply about the community. But if we're just looking at our investor hat and saying, what should you go out and invest in? You want to go out and invest in something that there's not a lot of that. A lot of people want that's housing. So when we're relating it to things like home prices going up You know, home prices are likely to go up for a number of reasons, regardless of what happens in immigration. And the reality is that home prices tend to go up with the rate of inflation over the last 40 years. That's why we talk about being a hedge against inflation. So nothing here would change my opinion that owning a home, specifically regarding immigration and the policy and where it goes from here. Nothing changes our perception that this is a great time to buy and hold these assets. As the country figures out how to solve the affordable housing problem, this is a great time to buy and hold an asset. And I just want to make one other point, too. In the executive order, he talks about how housing costs need to go down. Well, that doesn't mean that the price of homes goes down. There's a lot of ways and a lot of interpretations about how, what does housing costs going down really mean? Like, for example, the cost of housing is largely borne by the monthly payment that you make on your mortgage. That's largely how we look at what housing costs, folks. The The easiest way for housing costs to go down regardless of any of these policies is if we could go back to 3 percent interest rates or 4 percent interest rates, right? So, and at the same time housing prices can go up, interest costs could come down and the cost of housing overall could come down. So I do want to make sure we're, we're, we're noticing that. We're not talking about the executive order saying price of housing needs to go down. It's the overall cost of housing and the percentage of the cost burden that average Americans are sharing related to their income and their wages is really what the goal is here.
Pablo Gonzalez:Really good clarification. I literally just told Joanna, this is a good clip from this episode. So that being said, let's move on to, let's move on to tariffs, right? Speaking of costs there's executive orders talking about placing tariffs on Mexico, placing tariffs on Canada. Almost, almost, you know, like it just happened overnight where now there's like a 30 day kind of like wait on that. Based on this negotiation that now Canada and Mexico will strengthen the border. So it almost dovetails immediately into this immigration talk because you see how complex these issues are, right? But we're not going to get into like the complex of the politics, but you know, talking tariffs, if we were to put in a tariff on Canada, where we get a lot of lumber from or, or, or, or Mexico, how do you see this stuff affecting housing? Do you see.
Gregg Cohen:Man, hot, hot button item. I feel like all 140 people showed up to talk about tariffs because there have been a lot of discussions about that and in different viewpoints on it. And there's as to, to further accentuate the point that things are changing by the day when I put the notes together for. Some insights on tariffs yesterday. Everything changed from yesterday till today with the leaders from Canada and Mexico and, and president Trump meeting. So, you know, at the end of the day tariffs are greatly impact would greatly impact. the housing market. I think when it comes to the cost of building a new home, simply because Canada, Canadian lumber and gypsum are 70% of the materials that we use to go ahead and construct those, those homes, using those materials, 70%, they're our number one trading partner. And there's already, I believe, a, a 10 or a 15% tariff, you'll have to check the notes on, on that already in place before. We're now talking about enacting new tariffs. So, an additional 25 percent tariff has certainly caught the ears and the eyes of many of the home builders, many in the home building industry, National Association of Home Builders came out and said, Ooh, I don't know. We don't, we don't really like that. Specifically from the lens of what it would do for housing costs. And it, it makes sense if you run into the number 70 percent of the, one of the major inputs in a home going up by 25 to maybe 40 percent of a cost is hard to understand how that specifically in that one example, how that would not potentially have an increase to the cost of housing.
Pablo Gonzalez:Yeah, that makes sense. And again, I love the distinction you made before. This would be the cost of bringing homes to markets and the cost of replacement for your home. So I would assume that, you know, These tariffs go in, cost of lumber goes up. It kind of does what it did a couple of years ago when we had a, when we had a lumber shortage this idea that home prices would go up because of that. And therefore as a, as an investor, as somebody that holds a hard asset, it's kind of an advantageous position to get in either before these tariffs sit or be holding right now.
Gregg Cohen:You know, listen, housing prices are, are going to go up in the long run, regardless of whatever happens here for tariffs. Right, and I only say that because in 97 percent of years, and Jacksonville I'll just speak from, 97 percent of years housing prices go up. So, again, I'll keep going to the backdrop. This conversation is really interesting, and I think it's important to be aware of what's happening. But over the long haul, this doesn't change the value proposition of why you buy and hold single family rental properties, especially in a growth market like Jacksonville. So, I don't think it'll have a long term effect. And then, you know, there are, there are viewpoints that could actually lead to a decrease in housing costs when it comes to implementing tariffs as well. And I think we should shed some light there. You know, the, the idea that a tariff can be something of that can create leverage is, is what we're seeing in the conversations that President Trump is having with Mexico and Canada. And you know, that. The theory is that that can lead to overall decreases in costs in other places. And the other idea is that if you put a tariff, if you put a tariff on Canada, which we have a trade deficit with, that they are going to be willing to help in other areas that could decrease the, the, the cost of housing. So that, that certainly is out there. And I, and I think it's fair to see that that is an angle as they're negotiating right now. The other thing to keep in mind is that, you know, when you have 70 percent of the material coming from Canada and Mexico. That means that there's a lack of that material being built domestically. And so, in theory, if you can build domestically, you have the opportunity to build it at a lower cost and to have more control over the supply chain. And so that might stabilize prices or actually get prices down over the medium and the long run as well. So, Again, you know, time, how, if this would come into play, how it would come into play, what perspective are you looking at it from, from the immediate short run, or are you looking from medium, long term, you can land and a very, what I would say, a different conclusion as to what effect this would have on housing and, and the cost of housing. Makes sense, man.
Pablo Gonzalez:At the end of the day, constraints drive innovation, right? So if, if we are going to put these constraints and put these tariffs on maybe like the, The domestic the domestic manufacturing piece innovates and we have more control over it. We're able to drive down our own prices and do things that way. So there can be some good long term ramifications here. If it all works out again to just talk about how it mixes in everything else. I think Leah saying that there's a big supply in our northwest, right? So, like, maybe once you pair these these executive orders with the other ones that have to do with climate change and whatnot. They open up more supply that could also drive down prices things of that sort. So a little bit out of the scope, but it all kind of like relates, right? All these, all these different things. If we're looking at it specifically from the housing lens. Do you see, I'd like to get into the National Association of Home Builders, but you mentioned a big keyword that is kind of like the giant variable here, which is interest rates, right? Like nothing, nothing is as good at driving down costs of housing as interest rates are, right? So, do we want to talk a little bit about interest rates? Cause I believe that one of the executive, I don't know if it was an executive order or if it was just like a, Hey. Fed take down the interest rate, right? But like there was, there's definitely an overt request for that. You want to talk about that?
Gregg Cohen:Yeah, absolutely. I mean, where do we go? Where do we go from here? I mean, you know, there are, there's a lot of, listen, at the end of the day, you know, the best driver of housing affordability is for more longterm mortgage interest rates to, to come down. Everybody knows that the. But there's, there are real reasons as to why it's not happening yet. And you know, that's before president Trump took office, right. You know, before these executive orders started to come into play, there's, there have been questions about our deficit and, you know, ultimately our longterm interest rates are largely based on how appealing it is for people like you and me and people who control large amounts of money as well to go in and say, I want 10 year treasury. Right. I want to go and let the government borrow my money for 10 years and make a certain interest rate. And when there's concerns or questions about what our national deficit is, and when there are concerns about inflation, it has less of a demand for people to go out and let the government borrow their money for 10 years. And the reason that's related to our mortgage interest rates is because investors Look at what people are earning for that 10 year treasury yield. And they largely say, well, then I'm gonna go and let homebuyers borrow my money for, you know, 30 year mortgages. And so it's all related to that. And now, you know, this discussion's been going on, again, before President Trump even was elected. So, Those are the reasons why interest rates haven't come down. It's because inflation has stuck around for longer than expected. And there were concerns about our national deficit. Now, with some of these executive orders, questions about tariffs, questions about immigration, questions about all of this have maybe led to more concerns or less concerns or whatnot. The market really doesn't know where to go from here. And so you've seen interest rates actually 30 year mortgage rates actually do a little bit of this since Trump took office. And it's because again, we don't really know, but there's, there are, and then there's other things that have been talked about that are, that are affecting the psyche of what is the, the 30 year interest rate really, what, what, what should it be right now? There's this conversation about taking Fannie and Freddie, which have been under government conservatorship. Since the Great Recession and having them leave governor can government conservatorship and you know, what would that do to interest rates? Most most economists think that that in and of itself and that vacuum would actually to longer 30 years. rates as well. So guys,
Pablo Gonzalez:can you explain that real quick? What's, what is the Fannie Freddie, what is government conservatorship? And what did you say? It's going to, it's going to go longer the 30 year it's going to, it's going to increase or decrease. What can you just explain that real quick?
Gregg Cohen:Yeah, absolutely. So in the great, so prior to the great recession, Fannie Mae and Freddie Mac, who basically create the secondary market for mortgages in our country, they basically, they buy all of the mortgages from, in essence, from the banks that make the mortgages for us, and they create liquidity in the secondary market. they were not under government conservatorship prior to the Great Recession. Then in the Great Recession, they were about to go belly up, but the government couldn't let that happen. And so what the government did was provide a lot of liquidity to Fannie and Freddie, but they said, all right, we're going to give you this, but Number one, we're going to take, we're going to sort of take pseudo ownership. Yeah. And guys, this is just me talking again. I don't know all the terms exactly what conservatorship conservatorship means as far as ownership or anything. I'm just trying to make it simple. Right. It certainly
Pablo Gonzalez:rolls right off the tongue. Conservatorship
Gregg Cohen:conservatorship. Right. And they said, all right, well, we'll, we'll bail you out, but you know, we're gonna, we're gonna basically run the show. and then they're going to say, Fannie and Freddie, you're going to pay us back a lot, a lot, a lot, and they have and Fannie and Freddie has, has become a, a performing asset for the government. Well, now Fannie and Freddie are making a lot of money again, and the push. Has been talked about as far as when's the right time for Fannie and Freddie to no longer be under government conservatorship. And the way that this relates to all of us as real estate investors is Fannie and Freddie are government sponsored entities that help keep our mortgage rates low. Fannie and Freddie are government sponsored entities that other countries don't have. And so when you go to another country and you say, can I have a 30 year mortgage and have a low rate like we get in our country, you don't get that. And it's because they don't have these government sponsored entities. Well, we still are going to have Fannie and Freddie, but if they are no longer under government conservatorship, the question is, does the interest rates inherently go up for the borrowers because they're no longer essence. 100 percent backed by the government and nobody knows the answer to that, but that would be the train of thought that might say, well, if the, if Fannie and Freddie leave government conservatorship, would that in and of itself be an increase to interest rates would actually take away from housing affordability? So did I do okay there? Does that make sense?
Pablo Gonzalez:Yeah. Yeah. Yeah. That makes a lot of sense. So I'm essentially hearing Freddie and Fannie would go through some form of deregulation if this were to happen. And that. That would essentially create, I don't know if deregulation, I don't know if it's deregulation.
Gregg Cohen:Is it
Pablo Gonzalez:like less, less like oversight is, I mean, I guess that's deregulation. Is it just kind of like less rules and less stuff?
Gregg Cohen:I don't think anybody really knows
Pablo Gonzalez:anybody,
Gregg Cohen:um, but they would go through some kind of
Pablo Gonzalez:context change. Fannie and Freddie
Gregg Cohen:leaving conservatorship literally means not being kind of like owned by the government. Like right now, when Fannie and Freddie make money, it goes into the government's. Bank accounts as well as Fannie's and Freddie's. I don't know how that works, but it would it would be a It would not be like it is today. There we go. I keep it real general.
Pablo Gonzalez:Sounds good. So context change, meaning could have externalities that we don't know about. Right. So let's talk about this 10 point plan from the national association of builders. Did I get that right? All right. To, to address this, to address this, uh, 10 points are number one. Eliminate excessive regulations. Number two, promote careers in the skilled trades. Number three, fix building material supply chains and ease costs. Number four, pass federal tax legislation to expand the production of affordable and attainable housing. Five, overturn inefficient local zoning rules. Six, alleviate Permitting roadblocks, seven adopt reasonable and cost effective building codes, eight reduce local impact fees and other upfront taxes associated with housing construction, nine make it easier for developers to finance new housing and 10 update employment. Policies to promote flexibility and opportunity. Let's just take it right off the top of number one, this idea of eliminating excessive regulation. What do you know about excessive regulation and how that contributes to, to housing costs? You see,
Gregg Cohen:I see a lot of it. See a lot of it. I see our housing costs have increased dramatically, both on the development side and on, on the home building side. And so we see it firsthand. And, you know, I, I, I wanted to spend some time sharing this 10 point plan from the National Association of Home Builders, because some of you who are listening may be saying, All right, Greg, well, you've, you've done a pretty good job of painting both sides of the, of the equation when it comes to things like immigration or tariffs or whatnot. That really is my goal here. So those are hot button items. But you might be saying, well, what do you think? What do you really think the plan is and where do you guys stand behind at JWB? And this 10 point plan largely outlines the initiatives that JWB believes would have the biggest impact to improve our housing affordability. And the first one is there for a reason. According to the national association of home builders, 25 percent of the cost to build one single family home. And 40 percent of the cost to build an apartment is due to regulatory costs. So we need to have the right amount of regulation, but burdening a home by 25 percent or maybe 40 percent due to regulation seems like an opportunity for us to decrease the cost of housing to build it, which in theory and in actuality would dramatically lead to more home price affordability. And to put some numbers to it, according to the National Association of Home Builders and the studies they put together, 31, 000 of cost in a house comes from these regulations. That's 31, 000. You know, houses in Jacksonville we sell for, call it around 250, 000. I mean, that's, that's That's a lot of opportunity for us to, sharpen the pencil and make a really dramatic impact for Americans.
Pablo Gonzalez:if I was to just kind of like double click in on that, do you see, it sounds like we're talking there as far as like bringing homes to market and reducing kind of like the supply constraints to a certain extent. If we are talking about cost of home ownership and we were to eliminate a bunch of regulations, is there? Is there a case that could be made that, that may, that may or may not even out in, in cost of actual home ownership? Like, could that, like, if we reduce regulations, could that also maybe increase maintenance on the back end? Or even increase insurance? Because insurance now feels like, there is kind of like less regulation. So now they gotta price that in or something like that. Would that, would that be a fair thing to
Gregg Cohen:ponder? Well, I'm so glad you brought that up because that was going on in my mind. I was like, the idea of reducing regulations and saving 31 grand, sure, that sounds great, but what are you giving up? And I, so there's an example here that I did some research and I found. That I think accentuates the opportunity to sharpen the pencil a little bit. And so a recent study, and this was done by the Home Builders Association of Greater Kansas City. And this is that same study that found that the cost it's an additional 31, 000 of additional cost due to regulation. to build one single family home. According to their study, it would require up to 90. So they also looked at the, the savings, like the energy efficiency savings that are being required. And they ran the study for the energy efficiency, efficiency savings. And they said, basically, it's, it's just a little bit of energy efficiency savings, like. according to them, the homes that we are building now have been improved so much over the years that the net savings is really small. And according to their study, it would take up to 90 years for a home buyer who would be receiving that a little bit of an, of energy savings to recoup the cost of the 31, 000 of additional costs. So they're looking at it from the From the lens of the end buyer, who may or may not know that they're actually being burdened by these costs, and they're looking at what's the payback, what's the return on investment there, in 90 years sounds like a lot to me. So, this is not a push that I have or that JWB has that we should eliminate all regulation. We should just take a deep dive and look at. Look at what is the return on investment for the end home buyer here. And I do believe that there's a lot of opportunities for us to be thoughtful and prudent about this and, you know, and ultimately reduce, reduce the cost of build a house, because if you reduce the cost to build a house, what you're doing is you're lowering the future. Price gains in real estate, the future cost increases. We have certainly seen how cost increases have been a contributing factor to home prices going up over the last four years. And if we continue to have excessive costly regulation, that doesn't really put money in the pockets of our, of our home buyers, then we are certainly we're not on the fastest track to home price affordability.
Pablo Gonzalez:I'm glad that you were so prepared for that. Cause I was a little bit concerned that I was going to bring this up and it was short circuit you. So, uh, that was not planned that you had that, that you had that example yet, man. That's really cool. That's really good to hear. Um, the fact that this has been studied, that this can be really like a, like a big win and that there is real meat on the bone there to cut, man, like that makes me pretty optimistic points two and three promoting skills in the trades that doesn't really feel kind of like. You know, within the, within what we're talking about right now, material supply, you know, chains that, you know, we can talk about that with terrorists, but we pretty much beat that up for passing federal tax legislation to expand the production of affordable and attainable housing. GC, what do you think about this?
Gregg Cohen:Man, I love this. I love this. So this is a program, that we know here in Jacksonville, it's called the Low Income Housing Tax Credit. And it's a great program. The thing about it is people generally know that it works. It works because what it does is it incentivizes developers and investors to invest in missing middle housing. Missing middle is, the type of housing that we need in our workforce housing neighborhoods that might be townhomes. It might be duplexes, triplexes, quads apartments, right? Missing middle housing is a big need. And so these low income housing tax credits allow us to do that. They work. Everybody sort of agrees that they work. The problem is there's just not enough funding there. And the reason that they work for everybody here, not just developers and investors is because in order to do one of these deals as a developer. You have to commit to keeping your rents at affordable levels for a certain period of time, maybe 10 years, 15 years, or maybe even up to 40 years. And so you are securing affordable rents in the market for these developments. So we've got a model that works, there's just not nearly enough funding. You know, for JWB, if, if there was more and more funding out there to do things like this, we could do, you know, 10 of these a year in essence right now. And right now we're working on our very first one at the moment. But you know, from a, from an ability to perform it, there's nothing holding us back. It's, it's the funding. It's the funding that is holding it back. So expanding and passing legislation to expand the, those types of incentive programs, I think is a wonderful opportunity for our country.
Pablo Gonzalez:That sounds awesome. Do you hear a lot of that on the table? I feel like that's something that's not really being talked about right now, even though it's a point in this, in this thing.
Gregg Cohen:I think we're, we're fighting for it. You know, I, I don't know. I know it's something that we talk a lot about. But you know, it, it is more of a, from what I understand, it's, it's beyond the local level. It's the state and the federal level. And so, you know, we'll just keep shouting from the rooftops and hopefully they hear us.
Pablo Gonzalez:This is our platform. We get to shout about whatever we want. All right. Number five, speaking of things that we like to shout about overturning inefficient local zoning rules. I feel like this is one that we can all really get behind, right? This idea of like, Hey, low hanging fruit here is to increase density. You know, change these like inefficient land use policies, reduce the, like the need for parking in a world where autonomous vehicles are taken over and all this type of stuff. What do you, what do you think about this one, GC? Yeah.
Gregg Cohen:Man, this, this just seems like something that's in our locus of control. It is something that we can control and that can lead to very large gains in supply. And especially in Jacksonville, I think it matters even more here because as a city, we have a lot of land. We are, we are not densely populated like other cities. So when we're thinking about the supply solution here, that means that we have more of an opportunity here. If we can change some of our inefficient zoning rules to allow for more density, we can build. you know, twice as many units on the same given land or maybe more than that. And, and ultimately, if we keep our focus on supply, supply, supply is the problem. This is something that can have a large effect. So things that you can do, again, talking about expanding missing middle housing, like townhomes, duplexes, triplexes, things like that, but then also Reducing parking requirements. Reducing other variance requirements that limit the amount of units that you can build on a piece of land. And, you know, this, it's within our control. I think a lot of this comes down to communities and neighborhoods being open to it. There is, there is a lot of what's called NIMBY ism, which stands for Not In My Backyard ism. And, you know, if I'm just speaking for the general populations, we as a general population across this country are resistant to missing middle housing. That's the reason why it hasn't been done more. And that nimbyism is sort of protected by antiquated zoning codes. You go to other countries, you don't see the same type of layouts of housing that you see in, you know, in, in our country. So if we can evolve. A little bit. And, you know, the zoning codes can follow that evolution of us being open to more density, millions of Americans are going to benefit from this.
Pablo Gonzalez:You know, what I like about these last two, it feels like something that we can all get behind, right? Like this, it feels pretty bipartisan. It feels like it, it helps everybody, right? Like I, I think we've, we've done a real good job here and I really appreciate the community of just kind of like walking this fine line of people not yelling at each other in the chat or, or, I was really curious
Gregg Cohen:about that. Thank you for, for bringing me in there. Are we, are we, are we all, we all just, is this just a beautiful, you know,
Pablo Gonzalez:it has been beautiful
Gregg Cohen:conversation. Like we can do this more often as Americans, right? I appreciate everybody.
Pablo Gonzalez:I think so, man. I think so too. And I think, I think this is, um, we say it all the time, right? But this shows like a really safe space in the sense that is the community of people that all get along and we all kind of like, you know, we're able to set our differences aside because we understand that there's a bigger problem at hand here, which is right now we're talking about affordability and housing. We often talk about like the need to like find better ways to get to retirement and taking control of our financial future. So I really do want to appreciate the community for like how Not toxic this has been in any way and not not making it hard let's hit on a couple more things here gc number seven adopt a reasonable and cost effective building codes I know that you highlighted this one as something that you wanted to talk about You want to give you want to give your take on that?
Gregg Cohen:Yeah, it's it's that's where that example came from that I shared with you of of the minimal cost savings that these housing codes are requiring are just not having the payback that, that we have. And I you know, a lot of these housing codes have been really wonderful over, call it the last couple of decades to get us to a place where we have, you know, such, um, Energy efficiency in the homes and whatnot so the question really is is is it is it is it worth now to burden a new Homeowner call it 31, 000 for a single family home to get this amount of cost savings On on a you know on a monthly basis or an annual basis, and so there's a lot of examples like that. So these specific housing codes can be analyzed on from a return on investment perspective and say, are we doing what we set out to do? Or is this, or are we causing more damage by this costly of a housing code that does not have that much of an impact, right? I think we are all about energy efficiency and costs to put into something if there is a big return on that investment to the end homeowner, because ultimately what that does is. it improves housing affordability. I think what, what we're talking about here is improving those codes that do the opposite. And that example of it taking 90 years to get a payback would be an example of one of those.
Pablo Gonzalez:I love it, man. You know what I, what I think is what we gave it, we armed everybody with a bunch of good ideas of like talking about this at a, at a level when it comes to like real estate investing and a good plan forward to address the, the housing affordability crisis to, you know, reduce, alleviate the supply. you know, and the demand kind of like offsetting, I just shared the blueprint itself in the chat. If anybody wants to download it so you can talk about it, do you see, I'd love to just kind of riff a little bit with you here at the end. There's a couple of decent questions I, you know, like, you know, you know, I got a take on, on commercial real estate and, and how it affects for how it affects real estate investors. But I'll start with Michael Santorius, patron Santorius of the community says, Greg. According to Rent Cafe, there's a 484 percent increase in office to apartment conversions over the past four years. New York, Washington, D. C. rank one and two, respectively. Jacksonville is 14th on that list of the top 20 markets with the most planned office to apartment conversions. In your opinion, do you think this could help with affordable housing and by increasing supply? Pedro Santoro's
Gregg Cohen:great question. so do I think it can help? Yes. But I do think it's important to point out a couple of things. I haven't read that article, but 484 percent increase to me sounds substantial. My first thought is that we need to see what it's comparing it to because there was not a big push for office to apartment conversions over the past four years. So comparing You know, comparing, I mean, and sometimes these articles do this. They throw out these crazy percentages, but listen, nobody was converting from office to apartments four years ago. So, I, you know, that's, so I think we need to keep it in perspective. I think it can help. By increasing affordable housing, it does make sense. The problem is it is so expensive to convert from office to single family apartments. It's the way that office buildings are built out. If you think about it, the housing plates are just not conducive to apartments. So the reason that it's not done more often is because it's costly. The numbers don't make sense. In fact, cities have to incentivize it a ton. And so the question is, do those incentive dollars, are they better used for converting that office to apartment, or are they better used for other things by the city? And it's just costly. So did you want to add anything on there, Pops?
Pablo Gonzalez:Yeah. Let's make those costs real GC, right? Like if you really think about converting an apartment to an office, an office to an apartment, you're either going to have like a giant one bedroom apartment with one tiny little bathroom in it, or you're going to have to add a whole bunch of plumbing and a whole bunch of like really expensive things that go into it, right? Like you'd have to, you'd have to increase the, the kitchen floor plate and the things that the piping that go into kitchen, right? Like these significant construction costs. When you're talking about an interior build out is Plumbing, right? Like it's the stuff that's made of metal and you have to like get it from a whole another area into another. You might have to increase capacities for water flows, things of that type of sort. Am I, is, am I getting that kind of right you see as you're the expert builder here?
Gregg Cohen:Well, yes, definitely. I haven't done any office to apartment conversions, but I know that it's really expensive. You just like elevator shafts go up and then open up into the floor plate. Like that's not how an apartment works, right? You have the elevator shaft and, you know, it's just. Just thinking through things. I don't have a cost for this, but I can tell you that it's really expensive to move things around in an office building because I do know what we're spending on JWB's office building just to renovate an office building and it's expensive to, to renovate. Again, the office buildings that you're talking about converting largely are the ones that have been sitting around for a while as well. You know, so those are, it's just, in theory, it makes sense. It's not being done a whole lot. And to address why Jacksonville might be number, I think, 14 or 15 on the list. I mean, you think about the ways to solve the affordable housing problem. In Jacksonville, we have a lot of land. And so, you know, we can solve the affordable housing problem from any of these ways that we've just talked about on the National Association of Home Builders 10 point plan. And they're a whole lot less expensive. Like, changing zoning? It's a whole lot less expensive than creating incentive programs to fund downtown developers to convert from office to apartments. And that's why it's not necessarily being done as much in Jacksonville as, you know, other places. New York, they don't have, they don't have a whole lot of land to go and build. So it might, it might make sense more in a, in a city like New York to do office to apartment even than it would in Jacksonville.
Pablo Gonzalez:Love it, man. And shout out to Drew Barnhill who shared the article about JW b's renovation of the Greenleaf building in the WhatsApp chat, which talked about all the expenses that you guys are going through to renovate your office building It does not seem insignificant, my friend. Alright, so here's a hot take from me. A lot of what's being talked about right now in these mandates in this, like, in the, you know, one of the big ones is that it's like doge, right? Department of government efficiency is cutting down overhead and cutting down governmental, you know, departments and, and, and, and those have historically been seen as a major commercial real estate. Footprint, they have big commercial real estate footprints. In fact, I think federal government spends 5 billion annually on leasing private office space. There's about 21. 5 million square feet of usable office space and headquarters of 24 government agencies alone. We're coming off of this trend of people. Working from home and you know, like what they talk about is this idea that a lot of it is underutilized right now. So an easy place to go in there and cut spending would be to just like downsize these leases, downsize this kind of like, spend on office space. And when I think about that, I think of an already embattled commercial real estate economy that where people have already taken a couple of haircuts. And I wonder if that is something that. You know, could negatively affect real estate investors that are in the commercial real estate space. And another case for this idea of like, if you're going to be a real estate investor, all these headwinds tell you that, hey, everything is uncertain because there's so much change happening. But at the end of the day, this single family home asset class Has just kind of like less, less volatility. What do you think about that, G. C.?
Gregg Cohen:I'll just jump on the last point. I do think there's certainly merit to what you're talking about. I think a lot of it comes down to the, it's supply and demand. So how, how much, how much concentration is your market, in your marketplace when it comes to government jobs? Might be something to take into account. But I'm just going to jump on. The last thing he says, we continue to show risk factors in the commercial real estate world or in the apartment world that we just don't have in the single family world. I mean, at the end of the day, the, the government put an executive order together to talk about putting plans together to make sure that housing costs don't continue to go up so much. Right? It's not like they're doing that on the commercial side, right? You know, like, and then again, if, if thinking about it as an investor, just keeping it really simple, you want to be owning something that there's not a lot of supply of that a lot of people want, right? If the government understands that affordable housing is so important and they thought it was so important that in the first week of an office for them to say, Hey, listen, I want to see stuff put together so that the costs don't continue to rise at the same level. Like, that just means. It's a good asset to buy and hold, right? And you don't see this type of intervention on the commercial real estate side, you know? So again, I just like to keep it really simple guys, buy something that there is something in short supply. And a lot of people want single family rental properties fit that bill.
Pablo Gonzalez:I think that's a pretty good way to end this, right? Like this idea of like, Hey, there may be, we may feel like we're in like this chaotic world. At the end of the day, let's go back to first principles. You know, the reason why all this stuff, why there's such an elevated conversation around the housing supply is because it is in low supply. and high demand. There is a lot of work to be done to stop this idea that housing prices are going up at like a ridiculous rate. And at the end of the day, as real estate investors holding that asset that sits there is an asset in good position when everything else feels really, really turbulent. And You know, and it's so like D it's so decentralized that for it to create a giant dent in its creates has has to have so much effort from so many different moving tentacles that are so hard to put together. It makes me as a, as a real estate investor feel pretty good about the idea that, you know, like my approach to building wealth is essentially a 60 40 portfolio, but that 60 is single family rental homes in growing markets that, and, and like investing in these like workforce housing, that's chronically undersupplied, undersupplied and always, always going to be demanded. It's just kind of like the, the zoom out perspective, anything, anything there you see. I
Gregg Cohen:love, uh, I love the way you break it down, brother. I think, you know, it's just, uh, you have this beautiful asset sitting right under our noses and you can do it in a way where everybody wins. The resident wins, the country wins, you win, and it's right here. It's right outside our doors right now. Single family homes.
Pablo Gonzalez:I love it, man. I want to thank the community for making what we thought was going to be like a super, super hard thing into a relatively easy conversation to hold. We try to stay true to this idea of being bipartisan, sticking to like the stuff that we know, not, not injecting opinions. Greg even gave me some feedback ahead of time of an opinion that I was going to put in there that wasn't really an opinion, but then we took it out. But you know, we know it's not hard. We know it's not easy to do. We know this is hard to just like not get emotional around. We appreciate you all showing up. We had 120 plus people middle of the workday show up here for a, a relevant discussion. I'm hoping that we gave you some nuggets to walk away from here. That will make you a more informed investor. To make you a more balanced person in the home, because at the end of the day, I think we can all agree that, you know, polarization is not the answer. Coming together is the answer. And this community is a really, really good example of that. We have a special fortune builders webinar coming up, coming up on Thursday, where we're going to be going over the best markets for rentals. It is a variation of a show that we already did. But if you are a fortune builder's client, you're more than welcome to join that webinar. Again, we always have the community showing up and and supporting in there and it adds a lot of richness and texture to it and you're going to know the answer to the test before it happens. So you look even smarter in the chat. And then on Tuesday. We have a unique opportunity, right? Like I, I love talking about companies that eat their own dog food, right. As like a way to build real empathy towards clients and, um, and also trust in a market and at the end of the day, JWB is unique in a sense that it is approaching. It's own way of building a business by the way that you are approaching building your own wealth right through having single family rental home property investing as the center point of value creation that creates all this and Greg and his partners recently just sold a property or two after 10 years of owning it. And, uh, we're going to go over the case study, right? Like what was the outcome that it achieved? What was it that they were getting into it? What did they actually profit from in the five profit centers? What are they putting that money to use? And what it would look like for somebody starting today of how they can use the same exact strategy. That's going to be a really fun show on Tuesday. But you see, I'm really glad you brought it up. Anything to add to that?
Gregg Cohen:Man, I can't wait. It's going to be a great example of just what I talked about, how everybody can win. We're going to talk about how the community wins. We're going to talk about how the resident wins. We're going to talk about how JWB as the investor wins. and you'll get to see how you, when you make a similar decision will win after buying and holding these same assets.
Pablo Gonzalez:Love it. Thank you community for being so awesome as always. One final piece of advice, GC, take it away.
Gregg Cohen:Don't be average. Thank you everybody. Don't
Pablo Gonzalez:be average. See you on the next one.