A real estate theory of everything

Everything is connected to everything is a universal truth. Humans search for meaning, for explanations of what happened and what will happen. We shape theories to help us understand the workings of the world. Finding a theory for everything is one of the major unsolved challenges in physics.

String theory and M theory have been proposed, but the closest attempts to date are general relativity and quantum mechanics working in tandem. All modern physics is based on these two bodies of work. Normally you try to make things more simple. Trying to explain “everything” gets complicated quickly, but if we appreciate there are direct effects and echo effects, predictable outcomes and unintended consequences, then perhaps we can continually reach a higher consciousness, making better decisions.

This is especially true in real estate. If you buy a wrong-size T-shirt, you’re out 20 bucks, but property decisions involve thousands of dollars of risk. And right now it’s a jittery market, for both buyers and sellers. There is a huge sucking sound as $2.7 trillion in “value” goes down the drain as the market tanks. Notice I put “value” in quotes.

The Federal Reserve has stated one of its objectives in raising interest rates is to dampen the housing market because real estate is especially vulnerable to interest rate fluctuations. Their thinking is if we slow down the housing market that will decrease the inflation rate. After almost one year of rate increases, their program is failing miserably. The steep increase in rates has put millions of buyers on the sidelines and there’s been no appreciable drop in pricing. Existing homeowners are reluctant to engage as sellers in the turbulent conditions, and new home construction has stalled.

My real estate theory of everything (still under development) is illustrated with the issue of short-term rentals. The surge in properties committed to Airbnb and VRBO and other STR programs has become a hot topic. Municipalities, and some states, like Hawaii, are trying to rein these in because the impact on workforce housing has been negative.

There are many studies proving conclusively both sides of the debate. If it is true that STRs limit the amount of available housing that serve people who work in the community, as opposed to tourists, then the workforce shrinks as these people migrate to other places where they can have a roof over their head.

We aren’t just talking service sector jobs here. All levels of employment are affected. This alters the demographic make-up of a community as the crucial segments of younger workers and family formation age groups move away. If you look at the age segmentation of the various towns and cities across North Idaho, there is a significant proportion of 60+ years, and a significant absence of 18 to 40 years, similar to the make-up of the retirement communities of Sun City Ariz. or the elephant graveyards of Florida.

At the same time, tourists spend money in the community, especially resort places like Sandpoint or Sun Valley, often in the same restaurant where the chef and the server cannot find a place to live because that visitor is staying in the STR.

Sandpoint, Sun Valley, and other towns have initiated various levels of regulation in an attempt to control STRs. Idaho’s response at the state level has been to enact 67-6539 Limitations on Regulation of Short Term Rentals and Vacation Rentals, which states “Neither a county nor a city may enact or enforce any ordinance that has the express or practical effect of prohibiting short-term rentals or vacation rentals in the county or city.”

So the state is telling the local jurisdictions they cannot control their housing destiny. This will not end well. The emotional side of the argument looks like having a Job and a house are a luxury, which is of course ridiculous. With a dearth of realistic affordable housing options in most places, it looks like STRs benefit a few owners versus the overall health of the community.

There is a shortage of homes everywhere, but it is especially acute in the resort communities, where housing demand has soared beyond normal organic growth as the work-from-home movement took hold and big city paychecks bought up the housing, and at the same time, migration from the problems of dense urban areas escalated, driving buyers to the more peaceful places. Meanwhile the locals, normal people with real jobs, are competing with cash-rich investors or corporate buyers.

Why am I devoting time to this pursuit of a real estate theory for everything? Most people don’t wake up in the morning and start thinking right away about real estate, not even me.

And surely we need some respite from the constant barrage of media about the market doing this or that and worrying how this might affect us.

The variables that comprise my theory are pretty much beyond our individual control, and yet the decisions are completely ours alone. On the one hand, utter complexity, and on the other, pure simplicity.

I don’t like to end a column with uncertainty. That’s not much of a takeaway. But welcome to life. It's murky sometimes.

• • •

Raphael Barta is an associate broker with a practice in residential, vacant land, and commercial/investment properties. He can be reached at raphaelb@sandpoint.com.