Webster defines it as “the property of being in accord with fact or reality.” Truth is a beautiful, most reliable thing.
The truth of Christmas and the holidays is sometimes muffled by the hustle and bustle and stuff—but it’s always there. Truth is just like that. Sometimes soft spoken. Sometimes profound. Always present and most definitely the final word.
How is this related to the rental housing business? Completely related. Immutable truths are that upon which we base our successful businesses, a fact not always acknowledged by mere mortals. Holding vigorously to truth—from the engineering of our buildings to the operations of our businesses to the metrics of our campaigns—determines our level of success.
Here’s one more truth: land ownership. It’s a founding axiom of our businesses born of ancient civilization, and eventually making its way to William Bradford, the second governor of Plymouth in about 1622. The colonies experienced a miraculous pivot when they abandoned a community model for individual land ownership and rights. (Happy Thanksgiving and welcome to the greatest of all experiments in ancient principles of truth.)
Consider those countries that grant their citizens rights to own real property, and as importantly, actively protect those rights. In the U.S., we the citizens are empowered to sell, mortgage or rent our property for our own benefit.
Consider all the “facts or reality” of the promise of such property rights and their almost magnetic attraction to the human soul. They draw thousands of immigrants into the U.S., legally or otherwise, every day. Certainly not all newcomers will become property owners, but a country that respects the ancient, even spiritual, rights of land ownership is a culture based on deep-rooted truth, an enduring and greatly desired value in today’s world.
The closer the proximity of truth to an enterprise, the closer it will be to commercial success. And while it is true that most unprofitable businesses fail, successful operations give owners and managers significant meaning and purpose in life entirely separate from their fiscal return. It’s that giving or providing value to others that builds our businesses, but also gives us the gratification of serving others.
That my friends, is the power of truth.
Merry Christmas. Happy Chanukah. May the new year bring truth and success to your service to our communities. You are greatly appreciated and valued.
2 million residents were without power for days at a time in the state’s outages
6,402 wildfires in Calif. as of Nov. 3. Wind-induced fire season runs Oct. to April. Summer fire season runs June through Sept.
In October California utilities cut power to two million customers costing the region billions of dollars in productivity, spoiled food and more. Power was shut off to avoid line-sparked wildfires that might spread by high winds.
In the 1990s, California’s failed attempt to deregulate its utility market began with a poorly designed system that gave unfettered reign to power traders like Enron. The companies were allowed to limit supply and drive up prices. Far from creating market competition, the result was rolling blackouts and corrupt investor-owned utilities.
Pacific Gas & Electric (PG&E) equipment may have caused over nine wildfires at the beginning of October according to federal documents. Currently in bankruptcy from wildfires in 2017 and 2018, inspecting and properly trimming around the state’s 250,000 miles of overhead power lines is a multi-year challenge. PG&E handles 100,000 miles of lines including the state’s most remote regions.
Generators, ice, gas shortage
California residents and businesses experiencing days-long blackouts found local providers in low or no supply of needed generators and the gas to run them.
No hot water, no hot anything
Those fortunate to have generators created a run on fuel. The state with the most stringent air regulations found itself at odds as gas-powered generators fired up around the state to keep refrigerators, freezers, internet routers, EVs and cell phones charged.
Painted into a corner
New electric vehicle (EV) sales in Calif. rose 63.7 percent in the first half of 2019. The state accounts for half of all EVs sold nationwide. Of 950,000 new cars sold statewide in Q1/Q2, 13 percent were electrified (pure EV, hybrid or plug-in hybrid).
EV owners were cautioned
EV owners were issued warnings to keep their vehicles fully charged during the outages and fires. Many EV owners resorted to gas powered generators to charge their EVs.
Only half the solution
California mandates solar panels on all new construction. Solar panels require battery storage in order to operate in a blackout.
Electricity: A shrinking market
Solar panels and other micro energy generation decentralizes the state’s power grid—and profitability. In fact, utility revenue is expected to fall as much as 15 percent, or $48 billion over the next decade according to Accenture.
Generators are common in areas prone to snowstorms and severe weather, but California’s strict emissions standards make the operation of many generators illegal. Typically not an issue with the mild climate, but the blackouts created a new and uncharted market.
Rolling blackouts began in September. California’s air quality regulatory agency is temporarily waiving its restriction on the sale of generators that don’t meet California standards through December. This is to accommodate demand brought on by blackouts.
The surge in generator use—and their ensuing pollution—is not sitting well with California environmentalists. The Calif. Air Resource Board is collecting data on the size and number of gas and propane generators now in the state. But correlating the source and level of pollution of generators will be near impossible as the state also battles wildfires and poor air quality of major cities such as Los Angeles.
Most are prepared for hours-long power outages. Days-long outages are different. Battery backups run out, even emergency lighting only lasts about 12 hours. Food spoils. There’s no hot water for showers. Community entry gates and electronically-controlled front doors stop working. Even emergency lighting in halls and stairwells fail.
Apartment communities and other businesses are not hardened for long-term blackouts. Michael Wara at Stanford University calculated the shutdown could cost residents and businesses as much as $2.5 billion in losses.
The majority of generators in California are gasoline-powered. The price of gas in California—already the highest in the nation—continues to rise. The average cost per gallon is $4.18, and as much as $5 a gallon in many areas. The huge difference in California and the rest of the nation is its stringent regulations, rising housing costs and fuel taxes. Every gallon sold in California includes a 12-cent tax on gas, and a 20-cents tax on diesel. A repeal of the gas tax failed at the ballot in 2018.
“State and federal laws like the recently approved gas tax [in California], the Low Carbon Fuel Standard and other fuel-related taxes and fees add a little over 92 cents to each gallon of gas and have a profound impact on California’s businesses and communities,” Kara Siepmann, a spokeswoman for the Western States Petroleum Association said.
Programmed by humans, algorithms begin with a logic tree specifying every facet of the code’s behavior from content prioritization to blacklisting. With Google’s near monopoly, what hangs in the balance is the global economy, billions of dollars in ad revenue for Google, rental housing operators cost of operations—and the shaping of the country’s very thought and culture.
90+ percent of all online searches worldwide are through Google
How Google works (kind of)
Google indexes content while also programming for misspellings, wording idiosyncrasies and more. Google then places the most relevant information at the top of its search results page/section in accordance with undisclosed criteria.
Google’s search results favor large companies, and both its high-revenue advertisers and internal mono chromatic culture as reported in the Wall Street Journal.
What makes a match?
Google says hundreds of factors go into search results including the location of searched words on a webpage, page links, location of searched words, creation date of a page—while removing pages Google deems as scams, deceitful or including hate speech.
“Geopolitical competition and government regulations are poised to remake the digital economy,” according to recent research by consulting firm A.T. Kearney. “The global technological landscape is currently being reconstructed, subjecting the once-free and unfettered transfer of data across borders to new and greater digital walls.” This stems from the view that Big Tech is facilitating false information, monopolizing markets, honing in self-serving technology, as well as the growing concerns surrounding personal data.
Of human hands
No matter how large or small the task to be programmed, developers determine each parameter of the executable program in devising a specific outcome.
Changes to Google’s search algorithms are not fully disclosed though businesses have lived and died by them. The number of annual changes made to Google’s algorithm has grown from around 500 (2010) to roughly 3,200 algorithm changes in (2018).
Quantum supremacy: in the beginning
Google AI’s quantum computer, Sycamore, is said to have reached “quantum supremacy” on Oct. 23 by completing in minutes a math problem that would take today’s supercomputer 10,000 years (Nature magazine). IBM, owner of the world’s fastest two supercomputers said that it would take its supercomputer, Summit, two-and-a-half days. Still, it will be many years before quantum computing has worked through its high rate of errors and is useful or profitable.
The tip of the search
The Federal Trade Commission is running antitrust investigations into Facebook, Alphabet/Google, and Amazon. The FTC will assess whether these firms harmed market competition by way of their mergers and acquisitions as part of “a campaign of exclusionary conduct that includes exclusionary behavior,” said FTC chairman Joseph Simons.
3.8 million online searches made on Google every minute
$9 billion EU fines against Google (last three years) for anticompetitive practices
$12 billion Google paid in 2019 to remain Safari’s default browser
1 of every 7 Google searches are first-time content searches
Google operates in healthcare, phones, laptops, drones, AI, quantum computing, advertising and search.
In auto-complete, Google’s feature that predicts search terms as the user types a query, google filters out controversial subjects
12.3 percent of millennial renters plan to always rent—up from 10.7 percent nationally year-over-year. 9.8 percent of the U.S. population moved in the past year—the smallest number since 1948. 17 percent wanted a new /better home or apartment of those who moved in 2019. Over 12 percent moved for a new job or transfer. 2.9 percent […]
The national obsession with counting steps in the pursuit of physical fitness has spawned a plethora of pedometers in the marketplace and a trend toward pedestrian-oriented neighborhoods in the multifamily world.
But some are much more pedestrian-friendly than others, according to Walk Score, a website that rates the walkability of almost everywhere the United States, with points awarded from one to 100, based on proximity to amenities, population and intersection density and road metrics like block length.
A number of the finalist communities in the competition that honors superior achievement in multifamily development boast walk scores between 90 and 100, earning them the title of Walker’s Paradise, communities where residents do not need a car to accomplish daily errands.
The 97-unit Vici Apartments in the Little Italy neighborhood of San Diego, Calif., a finalist in Pillars’ best mixed-use and best midrise categories, boasts a nearly perfect walk score of 98, with pedestrian access to numerous dining and retail venues.
Developed by San Diego’s H.G. Fenton Company and built on a bit more than half an acre by general contractor Ledcor Group of Irvine, Calif., the seven-story rental community that was designed by Orange, Calif.-based AO Architects, includes 17,720 sq. ft. of retail and restaurants and a food hall on the first and second floors.
The 11,000 sq. ft. H.G. Fenton-developed Piazza della Famiglia, a central gathering place located between Vici Apartments and the seven-story H.G. Fenton-developed Amo Apartments, features a public courtyard with a fountain and retail and the Little Italy Mercato Farmers’ Market every Saturday.
For those who prefer to dine al fresco at home, Vici features a rooftop kitchen with a pizza oven, beer on tap, a hibachi grill and a BBQ.
The apartment community that includes studio, one- and two-bedroom apartments that range from 554 sq. ft. to 1,136 sq. ft. is a four-minute walk from County Center/Little Italy, a commuter stop near San Diego’s government buildings, a ten-minute walk to the Sante Fe Depot, 15 minutes to the Civic Center and an 18-minute stroll to Seaport Village, a shopping and dining complex adjacent to San Diego Bay.
Apartment interiors, designed by San Diego-based Robin Wilson Interior Design, include Bosch stainless steel appliances, full-size washers and dryers, quartz countertops, wood-style flooring, and private terraces with operable glass wall systems.
465 North Park
Residents of the 444-unit 465 North Park in Chicago, Ill., a finalist in Pillars’ Best High-Rise category, are a three-minute walk from the local Target discount store and right across the street from a Whole Foods Market.
The 48-story skyscraper that was co-developed by Chicago-based Jupiter Realty Company and MetLife Investment Management’s Chicago branch, with a curving elliptical design by Chicago architect Pappageorge Haymes Partners, encompasses a stepped tower atop a five-story podium and warrants a walk score of 96 and a transit score of 100, earning it the title of both walker’s and rider’s paradise.
The developer also is in process of redeveloping a 1.6-acre, 30-year-old public park just to the west of the apartment community that is close to numerous entertainment and dining venues and public transportation opportunities, including water taxi stops and Divvy stations for the city’s bike sharing program.
The market-rate apartment community that was built by Chicago-based Power Construction Company LLC includes units ranging from 523 sq. ft. studios to 2,137 sq. ft. penthouses and townhomes that range from 1,287 sq. ft. to 1,921 sq. ft. with interior design by Chicago-based Solomon Cordwell Buenz.
Multiple retail spaces are located on the ground floor with apartments on the second through fifth floors and seventh through 48th floors, penthouses on the top two floors and two-story townhomes on floors four and five.
To help 465 North Park stand out in the Windy City’s crowded skyline, the tower is capped by a glowing crown that changes colors in accordance with holidays and special events and conceals the first tuned sloshing damper, which mitigates wind-induced motion, to be installed in a residential high-rise building in Chicago.
The apartment community that recently earned LEED Gold certification features an acre of amenity space spread over different levels that include a swimming pool, a demonstration kitchen and dining room, a business center and a clubroom with billiards and fireplaces.
Solomon Cordwell Buenz also designed the 318-unit Anaha condo community in Honolulu, Hi, in partnership with Honolulu-based Benjamin Woo Architects. Developed by the Dallas, Texas-based Howard Hughes Corporation the finalist in Pillars’ best condominium category is yet another walker’s paradise with a walkability score of 94.
The 40-story community that was built by Hawaii’s Albert C. Kobayashi, Inc., is the second of two Howard Hughes luxury towers to rise in the master-planned Ward Village, which was awarded LEED Platinum certification for exhibiting the highest standards of sustainable neighborhood design, promoting pedestrian orientation, bike friendliness and easy access to public transit.
The glass-clad Anaha, which means “reflection of light” in Hawaiian, is a five-minute walk from the Ala Moana Shopping Center that is home to more than 290 restaurants and shops amidst a backdrop of lush tropical landscaping and koi ponds.
The 857,000 sq. ft. tower features a variety of retail and dining venues at the podium level, including one of local chef Peter Merriman’s signature restaurants that provide fresh, local and seasonal cuisine, and Hawaii’s flagship Whole Foods Market is right across the street.
The studio, one-, two-, and three-bedroom condos rise above 17,000 sq. ft. of retail space at the ground level. A recreation deck on the seventh floor includes an ocean view pool, dog park, tennis court and sand volleyball court.
The unit interiors, designed by international design firm Woods Bagot, feature hardwood flooring in living rooms and kitchens and wool carpet in the bedrooms, freestanding tubs in master bathrooms, wine refrigerators and polished-quartz composite countertops.
It’s a very short walk for residents of the 326-unit F1RST Residences to Nationals Park ball field that is located adjacent to the mixed-use community that includes 30,000 sq. ft. of retail space.
The apartment community that boasts a walk score of 93 also is a quarter-mile from the Anacostia Riverwalk Trail in the lively new Capitol Riverfront neighborhood of Washington, D.C., a mile from Capitol Hill and a three-minute walk from the Navy Yard Metro Station.
The finalist in Pillars’ best mixed-use category was developed by Grosvenor Americas, which has offices in Canada, Washington, D.C., and San Francisco, in partnership with Washington, D.C.-based McCaffery Interests, Inc., with design by Hickok Cole Architects and interior design by Hickok Cole Lifestyle, also of Washington, D.C.
The community that was built by Bethesda, Md.-based Clark Construction includes a 170-key, extended-stay Residence Inn by Marriott and fitness studios, fast-casual eateries and a full-service restaurant in the ground-floor retail space.
Eighteen dining venues that offer an international selection of cuisine are within a six- to eight-minute stroll and a Harris Teeter grocery store is an 11-minute walk from the apartment community that features rooftop dog park and stadium seating with unencumbered views of Nationals Park.
The studio, one- and two-bedroom apartments that range in size from 477 sq. ft. to 1,497 sq. ft. feature floor-to-ceiling windows with views of the riverfront and D.C. monuments and include engineered wood flooring, kitchen islands, stainless steel appliances, in-unit Bosch washers and dryers, porcelain tile in the bathrooms and subway tile backsplashes in the kitchens.
Laurel Cherry Creek
Located in pedestrian-friendly Cherry Creek North, a 16-block outdoor shopping and dining district in Denver, Colo., the 72-unit Laurel Cherry Creek, a finalist in Pillars’ best condominium category, is within walking distance of more than 600 businesses, including boutiques, spas and salons and galleries and eateries that range from sidewalk cafes to fine dining.
The upscale Cherry Creek Mall is located just two blocks away with more than a million sq. ft. of high-end retail and the University of Colorado Urgent Care is 1.5 blocks from the condominium community.
Developed by Denver-based PaulsCorp, LLC, designed by Denver architecture firm Johnson Nathan Strohe and built by Colorado-based Haselden Construction with interior design by Denver-based Kimberly Timmons Interiors, the 12-story high-rise community that soars above ground-floor restaurant and retail space, enjoys views of the Denver skyline, Pike’s Peak and the Rocky Mountains.
The community that boasts a walk score of 93 is within a five- to seven-minute walk from the Filmore Plaza, The Shops at North Creek and a nearby strip center.
The one-, two- and three-bedroom condos and penthouses that range from 934 sq. ft. to more than 4,700 sq. ft. are equipped with gourmet kitchens and free-standing soaking tubs and feature private balconies or terraces with glass railings, eight-foot walnut entry doors, gas fireplaces, wide-plank engineered flooring in all the living areas, wool loop carpet in the bedrooms and multi-panel sliding glass or folding glass doors.
Community amenities include a rooftop entertainment deck with a stainless-steel lined saltwater pool and a pool deck that is shaded by a walnut pergola, a summer kitchen with a pizza oven, and a lobby that is adorned by rich walnut woods and brass accents, Carrera marble flooring and a glittering chandelier.
A team of three world-renowned architects designed the 2.2-million sq. ft. tri-tower mixed-use Waterline Square that is a finalist in both the best high-rise and best mixed-use categories of the Pillars competition.
The 1,131-unit New York City condominium and rental community that encircles a 2.6-acre park designed by Mathews was developed by GID Development Group, which has nine regional offices across the country, and built by New York City-based AECOM Tishman on one of the last remaining Hudson River waterfront sites in Manhattan.
Big Apple-based Hill West Architects collaborated with the three architects, who designed the individual towers that make up the community that merits a “very walkable” score of 88, according to Walk Score.
The 37-story One Waterline Square, which houses 56 condominiums above 216 rental units and is distinguished by an undulating glass and metal façade was designed by Richard Meier & Partners, a Pritzker Prize-winning firm with offices in New York City and Los Angeles, Calif., and features interiors designed by New York City-based Champalimaud Design.
Two Waterline Square, designed by New York City-based Kohn Pedersen Fox Associates is the largest of the trio, home to 645 condos and apartments. The 397-foot-tall tower that tops out at 38 stories is the tallest of the three towers and features interior design by Yabu Pushelberg, which maintains offices in New York City and Toronto.
Designed by Rafael Viñoly Architects, the 34-story Three Waterline Square is the smallest of the three buildings, housing 47 condos and 167 rentals. Unit interiors were designed by New York City-based Groves & Co. with marble and wood accents that reflect a contemporary theme.
Two and Three Waterline Square include culinary venues by world-renowned Cipriani and New York City-based Empellón, respectively, and the towers share an amenity program at the Waterline Club that connects all three buildings. Designed by New York City-based Rockwell Group, the 100,000 sq. ft. space features an impressive array of amenities that include an indoor half-pipe skate park and a regulation-size tennis court, a rock-climbing wall, golf simulator, full-court basketball, and a saltwater lap pool.
The 435-unit, 29-story Modera Midtown, a finalist in Pillars’ best high-rise category, is located in Atlanta, Ga.’s art and technology district. The walkable, transit-oriented community is just steps away from a Whole Foods Market, one block from a MARTA rail station and within walking distance of numerous restaurants and shops.
Developed and built by Boca Raton, Fla.-based Mill Creek Residential Trust and designed by Bethesda, Md.-based SK+I Architecture, the mixed-use community with a walkability score of 88, includes more than 12,000 sq. ft. of retail and chef-driven restaurant space on the street-facing sides of the ground floor.
Located in Atlanta’s second largest business district, that is home to Fox Theatre, High Museum of Art, Opera Nightclub, Whiskey Park and Atlantic Station, the community that includes studio, one-, two- and three-bedroom and penthouse floor plans that range from 564 sq. ft. to 1,458 sq. ft. features a sky lounge, three rooftop terraces, two of which include pools, and an 1/8-mile running track that is elevated 100 feet above street level and wraps the building.
The units’ interiors, designed by Carlyn and Company of Great Falls, Va., include under-cabinet and toe-kick lighting, stainless steel appliances and gas cooktops, in-home washers and dryers, and Murphy beds in select studios.
The Residences at Pacific City
The 516-unit The Residences at Pacific City that is a finalist in Pillars’ best low-rise category is nestled amidst a thriving retail and dining scene, steps away from the sand and surf in Huntington Beach, Calif.
Developed by Highlands Ranch, Colo.-based UDR, Inc., with architectural design by Irvine, Calif.-based MVE+Partners and built by Bernards, also based in Irvine, the community that rates a walkability score of 78 is made up of six residential buildings that encircle three amenity buildings and an adjacent pool deck and is fronted by a two-acre public park.
All six of the buildings have courtyards that are connected thematically by a sundial concept that allows for activity levels to flow from one courtyard to the next, throughout the day. This transition is aided by their physical connection points, glass-railed overhead walkways, as well as a boardwalk that runs through the property, providing connection points to the public realm and linking residents to the beach.
A curvy-roofed amenity building, intended to convey the feel of an ocean wave, sits next to a 5,000-sq.-ft. pool with an island in the center that is outfitted with a 17-foot diagonal screen for movies and sporting events that lowers into a vault when not in use.
The apartments that are arranged in a semi-circle that faces the ocean and Huntington Beach Pier include one-, two- and three-bedroom units that range from 657 sq. ft. to 1,761 sq. ft. with interiors designed by Oakland, Calif.-based Mister Important Design that feature oversized windows, glass sliders, balconies, private patios and rooftop decks.
Apartment amenities include hardwood floors, quartz countertops and stainless steel appliances.
Winners will be announced on Jan. 21, 2020, during the NAHB International Builders’ Show in Las Vegas.
The coupling of big data with artificial intelligence (AI) and the internet of things (IoT) has power to disrupt the traditional way of basing real estate decisions on experience, past performance and intuition.
The machine learning component of AI enables multifamily owners and operators to more accurately and quickly pinpoint future risks and opportunities and gain insight into the trends driving performance in markets and at individual properties.
“It’s an evolution. Collected data is beginning to drive artificial intelligence engines. Whereas before, software would capture data for retrospective analysis—things that had happened in the past—the aggregation of massive amounts of data are being used to predict what will be, or should be,” said Jeff Adler, VP of Yardi Systems’ Matrix Products.
“The purpose of using AI is to speed up the analysis timeframe, reduce the repetitive mundane tasks required to make decisions and tease out relationships that would be hard to see when humans are looking at the data. That’s where big data takes a step beyond what traditional analysts have always done, what I have always done, and that is the future of predictive analytics,” he said.
An example is Yardi’s RENT Café, where AI engines deployed across the platform filter and distribute interactions with prospective apartment renters that come into the software via phone, text or email.
Based on how they are read by AI, interactions are either automated or go into a text library or to a chat box—the latter, a function of AI that provides real-time, detailed answers to apartment prospects’ questions, instead of scripted responses. Other examples of data useful in optimizing the resident acquisition process include turn list data and marketing budget data.
Another area in which data is organized, put through an AI engine and converted to recommended outcomes is real estate investment analysis. Yet another is predictive maintenance, where data generated by smart appliances installed in the building can alert management to impending malfunctions and even generate service requests to repair or replace the failing part.
“This is an emerging area and today we are focused on wrapping our arms around data that we have inside the various Yardi products and services. Big data is a five- to seven-year journey and the pieces will be deployed in different practical solutions over time,” said Adler.
Leading the charge
The process of utilizing advanced analytics across a portfolio entails collecting enough data to build accurate algorithms and manually scrubbing the data before it can be used. The datasets of any one owner of an individual property tend not to be large enough to draw generalizable outcomes, so any particular owner has a hard time amassing the amount of information sufficient to make predictive analysis work, said Adler.
For that reason, established software providers who have the ability to amass huge swaths of data from a multitude of sources are leading the analytics charge in the multifamily space.
The ideas behind data mining for predictive analytics were introduced to the apartment industry in 2001 with the revenue management systems that use algorithms to set rents for individual units, making previous methods of setting rents a thing of the past. These systems may be standard today, but they took almost a decade after introduction to catch on.
Similarly, big data has been slow to take hold in the industry where owners still rely on instinct, experience and human touch to glean a course of action from retrospective data.
And, with a number of start-up tech firms entering the market with AI products, many operators are still on the sidelines waiting to see which of them fall by the wayside and which remain standing.
“I think the future of AI and analytics primarily will be driven by the software platforms that have access to huge amounts of data. There’s a bunch of little companies that are trying to do the analytics, but they do not have the underlying plumbing, and I think most of those solutions will eventually go out of business,” said Adler.
Meanwhile, many industry professionals still compile market survey and comparison data the old way.
“We still have our onsite team members complete their own market surveys and regularly shop comps in person and over the phone in similar methods to what has always been done,” said Diane Norbury, senior VP of multifamily operations at Pillar Properties.
“While data providers have become increasingly more valuable in terms of their breadth, scope and frequency of compiling data in a more useful way, there is, in my opinion, no replacement for the daily touch points that our teams have as ‘boots on the ground.’ This allows them to remain in touch with what is happening in the marketplace in a way that can’t be fully captured by third-party sources.
“That said, data providers allow us to validate what we hear and see or dig into areas that previously were difficult for us to reach, providing a much more complete picture. From there, users quickly ask more educated questions and have the tools to develop more valuable strategies for their own operations,” she added
However slow big data is to catch on in multifamily, it’s power is too great for industry professionals to ignore. “AI is not going away. It is going to be something that is very important,” said Adler.
Norbury concurs, saying, “As data scientists continue to find ways to cull this data, scrape it and present it in meaningful ways, it will naturally develop into more reliable and valuable sources for our industry—especially as more users begin to rely upon it for daily decision-making.”
But surrounding big data are ethical and privacy issues that also cannot be ignored. Data anonymization is the use of one or more techniques that make it more difficult to identify a particular individual or property in stored data. Most privacy protections rely on informed consent for the disclosure and use of individuals’ private data, but because big data is a resource that can be used over and over again and often in ways not originally conceived of at the time the data was collected, erosion of anonymity can occur.
Regulations like the General Data Protection Regulation, a 2016 law on data protection and privacy for all individual citizens of the European Union and European Economic Area, and a recent data privacy law passed in California that is expected to be the first of many in the U.S., set up strict conditions for gaining consent from individuals and place the burden on the data provider to prove that an individual agreed to a certain action.
“It’s very important to us that anything that is individually identifiable remains the property and ownership of our clients and that is a very important core value of ours as we draw on aggregated and anonymized data to create solutions that add value to all of our clients.
“Based upon our relationship with clients and a choice we made, we have created an agreement by which we have the ability to aggregate and anonymize information to create benchmarks and actionable predictions for our clients, but not expose the data individually,” Adler said.
He explains there are substantial costs associated with data cleansing, providing appropriate security for the data and eliminating the inconsistencies that can happen when humans enter data. Data is cleaned monthly at Yardi by an autonomous team of experts who report to no Yardi product line and are the only humans with eyes on the underlying information.
“These are significant efforts by very skilled people who have to know a tremendous amount of information and knowledge about how all of the systems function together,” said Adler.
The data is extracted from clients’ data bases and placed into a centralized database to be normalized and cleansed and to ensure a consistent timeframe. Once assembled, a set of security routines must be run if the information is requested for extraction. Only then can the data be reported out on at a competitive property level or market or submarket or segmentation, but even then, the data must meet certain criteria. A built-in anonymization and aggregation routine requires at least five properties from two or more owners on the return set.
“The way it works in Matrix is you identify a comp set of 15, 20 or 30 properties and then you call out for the data to be returned. As long as there are five or more properties, you will return the results. I won’t and can’t know which five, six, seven or eight of the 15 or 20 came back. That’s the anonymization,” said Adler.
Making it better
Adler said “AI is really a misnomer for a set of technologies, like neural networks and language processing, that interact with each other to create better predictive and proscriptive analysis by applying large sets of data to a problem and running iterations sufficiently frequently to be able to create output and a feedback loop where the machine learns from each of them—with the idea that the more transaction data, the better the machine is able to make predictions over time.
“We’ve taken baby steps—the first was ‘Wouldn’t it be great if we could predict in advance if a property had enough demand to meet financial goals?’ And we said, “What do you need to make that kind of decision?’ You need to know what renewal rates are by floorplan, what the notices to vacate are and what they are likely to be, how much demand is coming or expected to come and put those things together and see if there is a gap. There is a set of algorithms that need to run to get to the point where I can say, ‘I think you have a gap.’ If you run that algorithm enough and back test it, you can say with some confidence there is a prediction of a gap. Now, what do you do with that? There are only three levers one can pull—change the price, change your advertisement activity, or change your resident qualification standards. In the absence of machine learning, and this is what I did as COO of a company, we made those decisions based upon the best information we had at the time and our gut understanding of the relationship between each one of those three levers.
“So, finally we ask, ‘Wouldn’t it be great if a machine could make some of those decisions? Could they make decisions more quickly and better than a human being?’ The first thing we did to derive answers was to exclude the resident quality standards, which were a bit more complex than we could handle and decide if we should increase price or modify advertising. Invariably, what tends to be the case is that as long as you are in a large urban market where there is a lot of demand and your property is a very small percentage of the total stock of housing in that market, it is less expensive to modify your advertising to get more leads to achieve your desired objective. So, we now have that chugging along inside of one of our services.
“We are very early on a five- to seven-year AI journey We are not trying to reinvent the wheel. We are harnessing some of the relationships in our aggregate dataset to make everyday problem solving a little better for our clients,” said Adler.
Pillar Properties is an early adopter of Yardi’s Elevate-branded, AI-enabled intelligence services designed for C-suite and other operational execs. Norbury gives testament to the predictive analytic and benchmarking prowess of AI-enabled software.
“Having benchmark data now allows outliers or concerns to make themselves more readily apparent, so decision making and changes in strategy can be done quickly, with less damage to operational performance when righting a course,”
“Also, it can highlight issues relating to specific areas of a business for more accurate adjustments, rather than applying a shotgun approach and perhaps missing the overall mark. We’ve found that by using benchmarking data, we can quickly assess if a troubled asset has issues with pricing, marketing, expense management or perhaps team members—whereas before it wasn’t always that evident. It has also made our onsite teams much more educated and independent to make successful decisions,” said Norbury.
Benchmarking data also helped Pillar Properties pinpoint the reasons for lagging performance in certain buildings. “For example, we found that one of our communities wasn’t reaching our rent growth goals and was having difficulty with occupancy as well, despite a strong competing sub-market that had high occupancy and rent growth. From the data, we found that historically this asset always outperformed its competitors in rents and rent growth and significantly slowed now that it was aging and there was new product online. We were no longer able to push rents, as we were already at the top of the submarket,” said Norbury.
After a sensitivity analysis extrapolated from the data showed that significantly dropping rents at the property would result in the occupancy level needed to meet or beat cash flow goals and still remain competitive, Pillar Properties changed focus from rent growth to occupancy and recalibrated its budgets.
“We’ve also been able to use benchmarking data to see when our competitors will have expirations and availability in certain floor plans and get ahead of strategizing our own vacancy and marketing plans—we never had tools like this before, and that’s extremely powerful.
“The multifamily and real estate industries are finally catching up with the rest of the world in successfully aggregating and digesting information in a valuable way that can improve efficiencies, operations and overall success. The more participation, the more refined the tools will become for everyone,” said Norbury.
Multifamily professionals who are interested in keeping up with the latest trends in the industry are undoubtedly familiar with NAA’s Apartmentalize and NMHC’s OPTECH shows. However, they may not be aware of another event that is worthy of their attention, particularly if they work in the development side of the industry. That event is NAHB’s International Builders’ Show (IBS).
From Jan. 21-23, the 2020 IBS will bring together more than 1,400 top manufacturers and suppliers from around the globe in 600,000 net square feet of exhibit space at the Las Vegas Convention Center. As the largest annual, light-construction trade show in the world, the show highlights the latest and most in-demand products and services, and brings together nearly 70,000 show attendees from across the residential construction industry. In addition to showcasing great new products, the show will feature a new project management track, and will also reveal cutting-edge information and trends in more than 150 education sessions throughout the week.
Education Track for Multifamily Pros
Many of the IBS education and information sessions are targeted specifically at the multifamily market segment, including numerous education sessions available directly through the Multifamily Central—the hub for all things multifamily during IBS. Popular sessions include:
Controlling Multifamily Construction Costs—Completing a project on time and on budget is critical to a successful multifamily development. Presenter Tom Tomaszewski of The Annex Group will share his insight on how to control construction costs while constructing multifamily projects, including information on the latest building technologies and tools.
Multifamily Modular vs. Site-Built: One Design Plan for Comparing Both Options— Modular has been popular topic as a potential solution for quicker development of multifamily properties. But how you know when it’s right for you to tackle your first multifamily project? Learn how to develop a single bid set of plans so you can get pricing and schedules for both site-built and modular from presenter Troy Tiddens of Neudesignarch.
This year also brings new multifamily sessions, such as:
Gen Z: End of the Alphabet and Beginning of an Era—During the next decade, Gen Z will grow from 8 million to over 55 million in the workplace, apartments and homes. This represents a huge opportunity and a challenge. Discover what Gen Z wants in their home, what they are willing to pay for and their approach to money and spending to help connect and engage with this growing demographic.
Tips on Entering the LIHTC/Affordable Housing Sector—Affordable housing projects can be a great investment for multifamily developers, as long as you’re aware of the many federal and state rules you must comply with in developing and managing such properties. Presenter Sean Kelly of Leon Weiner & Associates addresses both the opportunities and obstacles for entering the world of affordable housing and using the Low-Income Housing Tax Credit (LIHTC).
Developing a Mixed-Income Apartment Community: A Case Study—Mixed-income apartment communities can add layers of complexities through financing, investors, syndicators and more. Learn firsthand from presenter Chris Parker at GIV Development about the tips and best practices he utilized to help create Project One, a 112-unit, net-zero project with 70 percent affordable units in Salt Lake City.
The show boasts myriad general building sessions devoted to trending topics for home builders as well, including:
Best in Show: The Latest Trends in Housing from the Consumer Electronics Show—Technology is a key design area of interest for Gen Z and millennials, and the Consumer Electronics Show (CES) offers a unique perspective into upcoming trends. Panelists will share the latest trends fresh off the 2020 CES floor and how they will impact the home building industry.
Protect Your Assets: 10 Best Practices to Manage Risk & Reduce Liability in 2020— Save time and money by incorporating these best practices for risk management into your business operations. Attendees will learn to identify key contract provisions to help reduce liability and alternatives for dispute resolution, as well as updates from recent court cases to understand the latest issues leading to disputes.
Separate registration is also available for in-depth education prior to the show through master workshops which will be held Monday, Jan. 20.
Hot Spots at IBS
In addition to informative educational seminars, IBS also offers a host of other opportunities to learn and network with industry professionals. A full registration also includes access to:
Education on the show floor through construction demos at the High-Performance Building Zone, as well as an insider-look at the products and techniques discussed in the zone through the Builder Performance Lab
Opportunities to make new business connections, including IBS Centrals dedicated to topics such as multifamily housing, as well as 55+ housing, custom building, design, remodeling and sales
Networking opportunities included dedicated receptions and mixers in the Multifamily Central in addition to events such as the IBS Young Pro Party and IBS House Party.
Recognizing the Best
The Multifamily Pillars of the Industry Awards luncheon on Tuesday, Jan. 21, at 12-2 p.m. will also honor the best in the multifamily housing industry, including top developments, affordable housing projects, firms, marketing efforts and industry professionals. Tickets to this event are available through buildershow.com.
As part of the seventh annual Design and Construction Week®, IBS attendees will also have exhibit floor access to the National Kitchen & Bath Association’s Kitchen & Bath Industry Show. This co-location offers attendees the opportunity to explore a combined total of 2,000 exhibitors covering more than 1 million square feet of exhibit space at the Las Vegas Convention Center. Design and Construction Week will kick off Tuesday, Jan. 21, with keynote Earvin “Magic” Johnson.
“It’s our goal for the NAHB International Builders’ Show to be the event of the year for our members and industry professionals,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn. “Nowhere else will you find top-level education sessions, a variety of networking opportunities, special events and an exhibit hall full of innovative products all in one place. This is truly an event you can’t miss.”
To register or to obtain more information, visit buildershow.com.
“Economists generally expect [the United States] will experience a downturn… over the course of 2020 or early 2021,” says Sam Chandan, a trained economist, an associate dean of New York University’s Schack Institute of Real Estate, and a host of the Real Estate Hour on SiriusXM Radio. Chandan presented his “2020 Economic Forecast” at a ULI New York event in November.
But Chandan expects a recession, when it comes, to be relatively brief. “Any recession in modern economic history has been relatively short-lived compared to the period of growth to follow,” he said.
Given the length of the current economic expansion, Chandan is among those who are already focused on where opportunities to invest in real estate might appear after it is over. Data and in-depth analysis will help investors make the best decisions. And collaboration and cooperation will help lawmakers and local officials create the best policies to encourage growth.
Chandan himself is not predicting a recession in the near term. “No economist wants to go on record as saying that the downturn will be in 2020,” he says. “If it isn’t… then they will be remembered for that.”
Instead, Chandan is taking a close look at forecasts made by other economists. In October 2019, nearly 50 economists surveyed by the Wall Street Journal revised their estimates of how much the U.S. economy is likely to grow in 2020 to 1.6 percent. That is not a recession, though it is down from their average forecast of 2.0 percent growth the year before, according to the Journal’s Economic Forecasting Survey.
That is exactly what economists would do if they believed that a recession was likely: Forecast growth that did not stop but instead slowed significantly below the capacity of the economy. “They are hedging their reputational bets, saying: ‘You know what? I think the downturn is going to be in 2020. I just don’t want to go on record as saying so,’” says Chandan.
Bond investors also are sending a clear signal that a recession might be coming, Chandan says. For several months now, investors have been willing to buy long-term government bonds at a lower yield they get from short-term government bonds. These bond investors are effectively betting that Federal Reserve officials will soon be forced to announce more interest rate cuts to support a faltering economy.
Economists and investors have wondered for years how much longer the United States can expand. As of November, it had been growing consistently for 125 months—since the end of the Great Recession in 2009. “This is the longest expansion in modern U.S. economic history,” says Chandan. “In theory, the expansion could continue.” However, clues like the inverted yield curve and forecasting survey point to a slowdown.
Investors look for opportunities
If the U.S. economy does fall into recession in 2020, it is unlikely to shrink for more than a few months before beginning to grow again for several years, judging from the recent past, says Chandan.
Real estate investments are also likely to be less damaged by the next downturn than in past cycles. “Real estate doesn’t appear to be the sector where we are taking risks that won’t pay off,” says Chandan. “By and large, we have been fairly reserved in our development activity, in our investment activity.”
That said, Chandan does worry about some loans made to apartment properties. “Commercial real estate has been much more reserved in the expansion of its debt with the exception of multifamily,” he says. Lenders had $1.4 billion in loans outstanding to apartment properties. That’s twice the volume of apartment loans outstanding just before the financial crisis, he says.
In the rush to make those loans, some lenders may have lent too much. The average apartment borrower carried $13.95 of debt for every $1 of net operating income in the second quarter of 2019, up from an average of less than $10 of debt in 2010, according to Chandan.
“Not all of that debt is going to have been structured in a way that is going to survive maturing in a downturn,” says Chandan.
Real estate investors who have not overextended themselves are likely to survive a recession without much damage. “Those who are positioned defensively… are positioned to succeed when growth does return to the market,” says Chandan.
These investors will also have new tools to find opportunities in a recovery. That includes extremely granular data that is less fragmented that in the past—and a new generation of analysts and associates who can mine that data so that investors can make better decisions, says Chandan.
That will help companies navigate the changing demand for real estate. “The way in which we want to use space is changing on a more fundamental level than we have seen in economic history,” says Chandan. “Obvious examples include the way we choose to shop.”
Investors will also need strong data to navigate slower economic growth over the long term. The United States used to grow at a rate of roughly 3 percent a year, or even more than 4 percent during expansions. During the last decade, however, the usual rate of growth has hung closer to 2 percent.
“Over the last 10 or 20 years, the rate at which our economy grows has slowed,” says Chandan. The United States has chronically failed to invest enough money on infrastructure in the United States. “That ultimately exerts significant drags on how productive we can be as individual economic agents,” he says.
The growing inefficiency of the labor market has also made it tougher for people to get back to work, becoming a drag on the economy. “The necessary skills that make you relevant have never changed more rapidly,” says Chandan. “We have more jobs open and available today than we have ever had. The difficulty firms report is they cannot find the people with the right skills to fill those positions.”
Chandan also sees a mismatch in the housing markets: “The bulk of development that we have seen has been that class A, urban, high-rise building that is well amenitized and is in the top decile of the asking-rent distribution, if not even higher.”
That creates a glut of housing for upper-income people, and an expensive shortage for everyone else. “There have been eight years in a row where the median American renter has seen his or her rent increase faster than his or her income,” he says. “If teachers, firemen, policemen, and other people who serve community do not have the opportunity to reside within the communities that they serve, then the long-term economic outcomes that we see for the city are impaired.”
The solutions to these problems will require cooperation and collaboration, he says. For example, the cities best positioned to grow have the ability to invest in regional transportation infrastructure that helps people get from where they live to job opportunities—and paves the way for dense, new, relatively affordable transit-oriented developments that relieve stress on the housing markets.
In localities where stakeholders fail to cooperate, and housing costs continue to rise, the pressure will also rise on lawmakers to pass rigid, new rent-control laws.
“No one is winning with some of the outcomes that we are seeing and how we are going about trying to solve the housing affordability crisis,” says Chandan.
One of the biggest sources of anxiety about AI is not that it will turn against us, but that we simply cannot understand how it works. The solution to rogue systems that discriminate against women in credit applications or that make racist recommendations in criminal sentencing, or that reduce the number of black patients identified as needing extra medical care, might seem to be “explainable AI.” But sometimes, what’s just as important as knowing “why” an algorithm made a decision, is being able to ask “what” it was being optimized for in the first place?
Machine-learning algorithms are often called a black box because they resemble a closed system that takes an input and produces an output, without any explanation as to why. Knowing “why” is important for many industries, particularly those with fiduciary obligations like consumer finance, or in healthcare and education, where vulnerable lives are involved, or in military or government applications, where you need to be able to justify your decisions to the electorate.
Unfortunately, when it comes to deep-learning platforms, explainability is problematic. In many cases, the appeal of machine learning lies in its ability to find patterns that defy logic or intuition.
If you could map a relationship simply enough between inputs and outputs to explain it, you probably wouldn’t need machine learning in that context at all. Unlike a hand-coded system, you can’t just look inside a neural network and see how it works.
A neural network is composed of thousands of simulated neurons, arranged in interconnected layers that each receive input and output signals that are then fed into the next layer, and so on until a final output is reached. Even if you can interpret how a model is technically working in terms that an AI scientist could comprehend, explaining that to a “civilian decision-maker” is another problem altogether.
Deep Patient, for example, is a deep-learning platform at Mount Sinai Hospital in New York. It was trained using electronic health records from 700,000 individuals, and became adept at predicting disease, discovering patterns hidden in the hospital data that provided early warnings for patients at risk of developing a wide variety of ailments, including liver cancer, without human guidance.
Then, much to everyone’s surprise, Deep Patient also demonstrated an ability to predict the onset of certain psychiatric disorders like schizophrenia, which are notoriously difficult even for doctors to predict.
The challenge for medical professionals in such a scenario is to balance acknowledging the efficacy and value of the system with knowing how much to trust it, given that they don’t fully understand it or how it works.
Some organizations and industries are investing in the capability to audit and explain machine learning systems. The Defense Advanced Research Projects Agency (DARPA) is currently funding a program called Explainable AI, whose goal is to interpret the deep learning that powers drones and intelligence-mining operations.
Capital One, which has had its own serious issues with data breaches, created a research team dedicated to finding ways to make deep learning more explainable, as U.S. regulations require this type of company to explain decisions such as why they denied a credit card to a prospective customer.
Algorithmic regulation is likely to become more sophisticated over the next few years, as the public starts to become more openly concerned about the impact of AI on their lives. For example, under the General Data Protection Regulation (GDPR), which came into effect in 2018, the European Union requires companies to be able to explain a decision made by one of its algorithms.
Arguably in the near future, you won’t be able to design any kind of AI without both a team of top scientists, and also an equally capable team of privacy engineers and lawyers.
The rationale behind algorithmic regulation is accountability. Making AI more explainable is not just about reassuring leaders that they can trust algorithmic decisions; it is also about providing recourse for people to challenge AI-based decisions.
In fact, the issue of algorithmic transparency applies not only to machine learning, but also to any algorithm whose inner workings are kept hidden.
Algorithms that either appear to be biased or are obscure in the way they work have already been challenged in the courts.
For example, in 2014, the Houston Federation of Teachers brought a lawsuit against the Houston school district, arguing that the district’s use of a secret algorithm to determine how teachers were evaluated, fired, and given bonuses was unfair. The system was developed by a private company, which classified its algorithm as a trade secret and refused to share it with teachers.
Without knowing how they were being scored, teachers said, they were denied the right to challenge their terminations or evaluations. A circuit court found that the unexplainable software violated the teachers’ 14th Amendment right to due process, and the case was ultimately settled in 2016, with use of the algorithm being discontinued. In the next few years, the number of such challenges is likely to rise.
However, for leaders, the most important question to ask the teams designing and building automated solutions may be not why they reached a particular decision, but rather what are they being optimized for? Optimums are important.
There’s a classic thought experiment proposed by Swedish philosopher Nick Bostrom called the Paperclip Maximizer. It describes how an AI could end up destroying the world after being given the goal to manufacture paperclips as efficiently as possible, “with the consequence that it starts transforming first all of earth and then increasing portions of space into paperclip manufacturing facilities.”
The AI in Bostrom’s paper is not intrinsically evil. It was simply, in his view, given the wrong goal and no constraints. Wrong goals or optimums can cause a lot of unintended harm. For example, an AI program that set school schedules and bus schedules in Boston was scrapped after an outcry from working parents and others who objected that it did not take into account their schedules, and that it seemed to be focused on efficiency at the expense of education.
But was it the program’s fault? It was, after all, coded to look for ways to save money. However, unlike the complexities of building and interpreting an AI model—debating and deciding on what a system is optimized for is absolutely within the capability set of business leaders and boards, and so it should be.
AI is a tool that reflects our priorities, as organizations and governments. It might seem cold to discuss human fatalities in automotive or workplace accidents in terms of statistics, but if we decide that an algorithmic system should be designed to minimize accidents as a whole, we have to also judge any resulting harm in the context of the system it replaces. But in doing so, we will also have to be ready to be judged ourselves, and ready to justify our decisions and design principles.
Leaders will be challenged by shareholders, customers, and regulators on what they optimize for. There will be lawsuits that require you to reveal the human decisions behind the design of your AI systems, what ethical and social concerns you took into account, the origins and methods by which you procured your training data, and how well you monitored the results of those systems for traces of bias or discrimination.
Document your decisions carefully and make sure you understand, or at the very least trust, the algorithmic processes at the heart of your business.
Simply arguing that your AI platform was a black box that no one understood is unlikely to be a successful legal defense in the 21st century. It will be about as convincing as “the algorithm made me do it.”
Author Mike Walsh is the author of The Algorithmic Leader: How to Be Smart When Machines Are Smarter Than You. Walsh is the CEO of Tomorrow, a global consultancy on designing companies for the 21st century.
The inscription (above) is reminiscent of another that, according to Newsweek, was unearthed in the Sumerian city of Ur (located in modern-day Iraq and founded in 3800 B.C.), which says, “If the unheard-of actions of today’s youth are allowed to continue, then we are doomed.”
Whether these tablets actually exist is unclear. (Snopes, where are you when we need you?) What matters is that variations of these quotes have been circulating for at least a century, and there’s a reason for that.
OK Boomer and generational discord
Few will disagree that there is a tendency for generations to caricaturize one another. The young tend to see the old as fuddy-duds and scolds, while the old tend to view the young as disrespectful, lazy, and rebellious.
Nowhere is this more evident than in the current OK Boomer movement. If you’re not familiar, OK Boomer is an internet meme and catchphrase that went viral in 2019. It’s used by Gen Z and millennials to mock baby boomers grousing about their work ethic and attitudes.
To be fair, young people have something to grump about. (I say this as a Gen Xer who has no skin in the game.) They’ve been accused of being emotionally fragile, sexless, lazy, ingrates who are going to die faster than everyone else (so there!)
The extent to which any of these characterizations are true is open to debate, as is the extent to which baby boomers and Gen Xers actually believe these things. (One could argue that much of the discontent is driven by weak social science and media who fan outrage to gin up clicks.)
What matters is that young people are getting a little tired of the caricatures, evidenced by the commercial success of OK Boomer merchandise. In turn, baby boomers appear to be irritated by the young upstarts who are clapping back.
“OK, millennials,” Myrna Blyth, senior vice president and editorial director at AARP, told Axios. “But we’re the people that actually have the money.”
The internet exploded over Blyth’s comment, of course, and the AARP quickly disavowed her words. While the (over)reaction to Blyth’s comment is much ado about nothing, it foreshadows a greater conflict ahead.
OK Boomer is part of a larger showdown
The baby boomers might “have the money,” as Blyth put it, but they’re also leaning on millennials and Gen Z to collect more of their paychecks.
About 44 million Americans received Social Security benefits in 2018, and about 34 million of those were baby boomers, who continue to retire at a clip of roughly 10,000 per day. That’s a lot of retirees to support.
Before you begrudge boomers too much, consider a few things. First, boomers contributed lots of money to Social Security over the years themselves. Second, most of them are banking on that Social Security income, one of the proverbial “three legs” of the retirement stool, along with pensions/ employer-sponsored accounts and personal savings. Third, boomers haven’t done a great job building out the other two legs—45 percent say they have zero retirement savings!—so many of them really need those Social Security checks, even if they have less debt and more equity than any other generation.
Nevertheless, Gen Z and millennials have some legit gripes. Baby boomers might have paid into Social Security, but millennials and Gen Z are being asked to pay a lot more—for a program that will likely offer them less return.
Social Security will begin drawing down its assets to pay retirees their promised benefits. Without program changes, the trust will be depleted within 15 years.
In 1960, when the oldest boomers started paying Social Security, they paid 3 percent on income up to $4,800 ($41,000 in 2018 dollars). By 1970 they were paying 4.8 percent on the first $7,800 ($51,000 in 2018 dollars). By 1980, when the youngest boomers were hitting the workforce, they were paying 6.13 percent on the first $25,900 of income ($80,000 in 2018).
Workers today, on the other hand, are paying 6.2 percent on income up to $132,900. That’s a far greater contribution (if you can call it that) by a long shot. The problem is it’s nowhere near enough.
Next year, The New York Times reports, for the first time in nearly 40 years, Social Security will begin drawing down its assets to pay retirees their promised benefits. Without program changes, the trust will be depleted within 15 years.
“Then, something that has been unimaginable for decades would be required under current law,” says the Times. “Benefit checks for retirees would be cut by about 20 percent across the board.”
Does anyone think retirees will sit back and take a 20 percent shave on their retirement?
Me neither. So what happens? It’s hard to say, but we should first recognize that this is no easy fix.
Who’s going to budge?
One of the problems with Social Security is that as the program has aged, fewer and fewer workers are supporting more and more retirees. In 1945, there were 42 workers per beneficiary. By 1960, there were just over five workers per beneficiary. From 1970 through the 2000s, there were between three and four workers for every retiree.
Today, 2.8 workers cover each retiree’s benefits, according to the Social Security Administration. By 2030 there will be just 2.4 workers supporting each retiree. (In Europe, the worker-retiree ratio is even lower.) However you slice the data, it’s clear that to sustain its growing population Social Security will require much bigger, ahem, contributions.
Okay, call them taxes, FICA. Whatever. The point is, the coming generations will be asked to pony up a lot more. How much? Well, the trustees of the Social Security program project the cash-flow deficit over the next 80 years to reach a staggering $44.2 trillion, says economist Veronique de Rugy.
That’s trillion, with a t. To put that figure into perspective, total federal revenues in 2019 amounted to $3.46 trillion.
There are pathways to making Social Security solvent, of course. Most of them involve young people paying more in taxes and retiring later. To fund Social Security for a generation 12 times wealthier than they are.
The irony of it all is almost too much. The “lazy” Millennials and “self-absorbed” Gen Zers will soon be asked to cough up trillions to cover the retirements of the boomers who mercilessly mock them, all to fund a program most millennials worry will not even exist by the time they reach retirement.
One cannot help but wonder if, when called upon to pay these obligations, millennials and Gen Z will just cock their heads and reply, OK Boomer.