So Jay Parsons is a rental housing economist, advisor and speaker based in the Dallas area. He flew in, like I said, yesterday. He concurrently, like I said, is an advisor consultant and speaker for investors, lenders, and operators across the rental housing industry. He's a graduate of University of Maryland and a widely cited voice in the space, quoted in outlets like The Wall Street Journal, Bloomberg, and The Economist with regular appearances on CNBC and Bloomberg TV. He also hosts a podcast, The Rent Role, with Jay Parsons, and was named one of the Globe Street's 2023 influencers in multifamily real estate. And again, if you do not follow him on LinkedIn, I strongly encourage you to do so. Lots of phenomenal insights. He's married with five children and serves on the board of Apartment Life, a nonprofit supporting apartment residents. Jay Parsons.

Thank you so much. All right. Thank you, Tracy, for the warm introduction, and thank you all for having me. You know, so I used to heard I am from Dallas, and so you know, it's always a little bit weird for me coming up to a city where I'm telling you what's happening in your city, in your markets. And so I approach that very humbly. Uh, you know, I I will tell you just right out of the gate that uh, you know, I'm a I'm I'm a data nerd looking at a bunch of data and giving you more of a national perspective on what's happening in this region. But obviously you guys know your market far better than I do. And so uh, you know, I always love to get color and and sometimes the data and the and what you see on the ground doesn't always align. So if I get stuff wrong, I'd love to learn from you guys as well. Um and also I just just so you know, I I I I um I have a I have a soft spot in my heart for these Midwest cities. I was telling some folks at dinner last night, I love coming up to places like Milwaukee. Um my family, uh my dad's family is originally from Cleveland. And uh, you know, so I love coming to you know, Ohio, Wisconsin, Michigan, Indiana. Uh Chicago's a little different. I know we don't we it's you know Chicago's Chicago, but these other cities I don't think get enough love sometimes. But there is something special about uh I think great cities like like these where uh you know they're not as much uh they don't get the they don't get the um you know the same they don't have the same reputation as some of the uh you know Chicago's and New York or whatnot. But I think you get this great mix of you know history and uh and culture, the architecture, the walkability, but at a little bit slower pace than what you get you know in new in New York and whatnot. And I think there's something cool about that. So I love coming up here and uh and you know it's such a great city to walk around. Um uh great food. Johnny V's, of course. Uh thank you for dinner last night. And um uh so so thank you for having me. I love coming up here. All right, so let's uh get into it. I got a bunch of slides. I'm gonna go through this uh fairly quickly uh in the time that we have, but I'm happy to share a copy of these slides with you all. Um and I'll try to camp out on some issues I think are more relevant and then other things that may just kind of breeze through. Um, so I like to start off with a little bit of trivia, and this is a big one. If you ever listen to my podcast, I do trivia every week, and I'm an again, I'm a nerd for rental housing, and I don't I just rental housing is my uh is is I think a great space. One of the reasons I love it and I do what I do is because there's so much so much misunderstandings about rental housing, about apartments, singleton rentals, build to rent, and uh and I love myth busting. I love this stuff. And so I think this is one of the most misunderstood topics. I'll talk about this more a little bit later. But affordability is obviously a big topic. So uh question for you guys, and no, you don't have to shout this out, but if you of course you're welcome to. But if you have renters, and this is with roommates, households making at least $50,000 a year, what share of income do they spend on rent? And uh, you know, you can think about that what you think that money answer might be. Uh, is it 22, 25, 28, 31? And usually, if I ask people this, if I did a poll, almost always they're gonna say D, it's 31%. And if I took out the 50,000 threshold, you'd be right. Uh however, as I might show you later, rental housing and rent affordability is an extremely bifurcated issue. It's a haves and have nots, people call it a K-shaped. And the the the challenges are really at the at the lower end of the market. You make more than $50,000, they're spending 22% of income on rent. It's a very different market than those who are making less than $50,000. And that skews the national data dramatically. The averages can be misleading, is really the point there. So I'm gonna get into this a little bit later. I want to make the case, I think, in the in the market rate segment of the market, catering to $50,000 plus incomes, especially once you get $75,000 and up, anything else with roommates, you have two roommates or you know, 25-year-olds making 40 grand each, uh, 50, whatever, um, you know, affordability is actually becoming more of a tailwind than a headwind in that part of the market, even if the broader market, affordability is still a big challenge. And so it's again more nuanced the headlines give it credit for. All right, so let's get into the data. I'm gonna, as we go through this, one thing I'm gonna try to do is talk about what's happening regionally, but also give you the context of what's happening nationally. And I think that's makes an interesting story because you know, Milwaukee and the broader Midwest, it's a it's a much more stable, steady eddy story than what's happening in some of the national numbers. Just like with affordability, the averages can be misleading. You know, sometimes the national averages don't represent what's happening here. And so let's start with apartment demand, though. This is national, and I think one of the big surprises on the upside this year has been absorption, demand. We've seen really good numbers. And this is nationally, this is through the first half of the year, we'll get the Q3 numbers here in a few weeks. But uh, while there's been a little bit of a drop-off of last year, we're seeing from you know CoStar and RealPage and others that the apartment absorption numbers are still really good. In fact, I think they're a lot better than most of the forecasters expected. And we'll talk about this a little bit more as we get into it, but I think some people say this, well, it's just because no one's buying houses. And here's the thing about that is that obviously people are renting longer. I'll talk about that a little more in a little bit. But just because you're renting longer, just because mortgage rates are higher, that doesn't create more renters. It still means we added uh a quarter million new apartment renters just in this last in the first half of this year. And so on the back end of that, that could the net absorption numbers influence by fewer move-outs, but you're still adding a quarter million apartment renters. That's a lot. And so they're coming from somewhere, and that's a that's a really good story. And here in the Midwest region, it's a similar story where absorption rates have come down a little bit from the crazy numbers of last year, which you're abnormally high. But sometimes I think we get, you know, I always like a longer-term chart because if you just look at last year versus this year, you think, well, man, things are really slowing down. These numbers are still really good. We're still seeing good absorption across the region. And then um, and then uh let's looking at uh retention rates, it's a it's a pretty similar story where I've got Milwaukee in blue, the US average in green, uh Midwest in orange, and uh and what you'll see is that retention rates have been steadily increasing. And obviously in the Midwest they tend to be higher anyway. Milwaukee is one of the highest in the country, and uh and what that really means is that um you know you know you know you don't have as much uh mob mobility. People are tend to be, once they move in, they tend to stay longer, and the Midwest typically has higher retention rates. And in an environment like now, where there's been you know you know kind of more challenge on the front end of leasing, a lot more competition with supply and whatnot, having high retention is a really good thing because it's renewals that really are boosting the rent roll. But what also what I want to share with you on this, and one thing I think is really encouraging for the long-term outlook for apartments, is that a lot of people, one of my pet peeves, I think a lot of people they see the rental market only through the lens of homeownership and would-be home buyers. And I think that's a very kind of jilted way to look at the market. Like the rental market stands on its own as well. And uh, and obviously there's a, you know, the what happens in the home buying market is a contributing factor, but it's not the only factor. I I think it's not even the primary factor, it's a contributing factor. And so when you look at this, for instance, like the narrative is like, oh, everyone's renewing their leases because they can't buy a house. But you look at this, and I mean Milwaukee's always been high, but especially if you look at the national averages in uh in the Midwest averages and below that, you can see like this trend didn't just start in 23 and 24 when mortgage rates went up. This has been happening for 10 plus years. We're seeing retention rates steadily improve. People are renting in the same places longer. I think there's a lot of reasons for that, and we I'm not, you know, a lot of things, including the fact that, you know, for most of us, the last time we lived in an apartment, those apartments weren't nearly as nice as today's apartments. Today's apartments provide our much stickier living experience. They're better managed, they're better amenitized. They're just, I mean, I remember my last apartment I lived in, I was ready to move out the day after we moved in. You know, and and today's apartments, I mean, they're just so much nicer. There was an article a while back in the Wall Street Journal about Gen Z renters, and they profile people, you know, and I remember reading about this one, you know, 20-something, and uh, she was talking about moving from this old kind of dark building into this new building with with like floor to ceiling windows. She's talking about how much she likes the aura of her apartment community and how she wants to be there a long time. And like, and I was, you know, in my early 20s, I never thought about the aura of my building. But like it's just a different experience today. I think that contributes to these numbers. I guess not just about the mortgage rates. And so the real issue lately in the last few years has been supply. And this is apartment supply going back these um uh since the 1960s. And the supply wave we just went through nationally was the biggest supply wave since the late 1970s. It was a generational supply wave. It peaked in 24 in almost 600,000 units, and then last year it dropped off. But I think a lot of investors made too big of a deal about the drop-off and not a much and not enough big deal about the side the fact that it was still a lot of supply. And so, like, you know, one of my things I like to say a lot is that you know, all the survive till 25 stuff we heard about in multifamily in particular, I think it really should have been survived through 2025 because that 2025 supply number was still the third highest supply year since the mid-1980s, behind only 24 and 23. And so we still it was still a you know a major headwind. I think supply was the number one, two, and three headwind for apartments these last few years. Now we're at a point where supply is really dropping off, it's getting back to kind of pre-COVID levels, which was much more absorbable relative to, you know, we had it's not like supply is totally disappearing. There's still supply out there, but it's much more manageable levels, and now we're seeing demand outpace uh supply again. And uh and and supply is also the one thing that's fairly easy to forecast. It just starts being pushed forward. And by the way, don't use the census for starts, it's terrible. But if you use like real data providers, and you look at what's happening, people who actually track uh you know how uh apartment starts from you know, co-stars, the real pages, et cetera, you know, we are seeing what lines up with economic realities and common sense, which is that it's much harder to get deals out of the ground. They're still happening, but not near the degree that we saw previously. And the other thing I would show with you too is one of the questions I get is well, Jay, isn't that just gonna jump back up once rents start to rebound again? And sure, I think it will a little bit, but just think about the perfect storm that it took to get construction numbers at those levels. It was obviously really cheap debt, inflationary demand, inflationary rent growth, you had cap rate compression across asset classes that pushed, I think, more capital in the new construction, trying to chase better yield. And so even if rents rebound, construction, you know, the debt costs are still high. That's gonna limit how much gets built. If rates actually do come down, there's probably some demand side problems in the economy, and that'll limit how much gets built. And so I I think we're gonna look, I mean, I could be wrong about this, but I think we're gonna look back at this as a generational wave uh high in supply that I I don't I I I doubt we'll see again anytime in my career. We'll see. And then the same thing here in the Midwest. Uh well, we didn't build nearly as much in the Midwest. We did have a peak in 23 and 24, and it started to pull back, and again, not disappearing, but supply is coming back down to pre-COVID levels and actually a little bit below that. Here in Milwaukee, the MSA, uh, you know, we don't build a ton here anyway. I know that, you know, I I think that locally it sometimes feels like a lot, and sometimes you may think there's certain pockets that are oversupplied. But you know, I live in Texas. I promise you, what you're building here is nowhere near a lot, okay? It's just not that much. And uh and so we peaked at about 3,000 units they completed in 2025. That's numbers come down significantly. And so for an MSA this size, like these are, you know, I know there's isolated pockets where it's a little bit more, but these are generally pretty low numbers, and it's gonna be lower even with pretty stable numbers here. It's just hard to get things built. And also on highlight Madison, there's been a little more activity in the Madison area, and so that wave actually, it's one of the few markets where construction, the wave is gonna last through 27 before it drops off in uh in that market. Uh now to give you a little bit of context here, this is supply relative to the size of the market. And so so here in in Milwaukee, for instance, like what this has shown you is pre-COVID, we were adding supply at about a you know 1.6% growth rate, 1.6 new units per 100 that existed. At the peak, we're at 2.2, which is still pretty low, um, but it's high for Milwaukee. And then now it's about 1%, and it's gonna hover around those numbers. Madison obviously peaked a much higher, 4.2%, and stays a bit more. I typically think of anything above 3% as as a as a fair amount of supply. Um, but uh and so Milwaukee stayed below that. And then I want to show you just the the highest supplied markets across the Midwest. And so just for some context here, Milwaukee's not even on this chart, but Madison is the second most supplied market in the entire Midwest region behind Sioux Falls, 10% supply growth there. I've you know obviously a ton of growth out in Sioux Falls, but Madison uh second highest behind uh or just ahead of Fargo, Des Moines, and Indianapolis. So um uh just yeah, give you a little bit of color there. But in all these spots other than in Madison, you do see a substantial drop-off uh in supply, or just not that much to begin with. And then looking at the uh Milwaukee and Madison markets, these are the submarkets in the region, and so it shows you uh where are we building the most supply. This is since COVID, or actually really since the the this decade. So going back to start of 2020. And so, like in in the East Madison area, we built 6,000 units at 25% supply growth. West Madison was almost as many units, 5,000, and then uh the Milwaukee markets, uh, you see uh you know generally much lower numbers, even if it's been sizable uh relative to Milwaukee's history. Uh starts, this is construction starts. So again, they've not disappeared, but they've certainly come down substantially around nationally, around 300,000 units, so that's half what we had at the peak. So again, not disappearing, but certainly far below what they were. And then um I went back and looked at everything across the country that's broken ground since the second half of last year, and think, hey, you know, obviously it's hard to get deals done, rates are high, uh, you know, rents are soft in most markets. So what what is the profile of deals that are so breaking ground? And I've you know kind of six six categories here. Number one, it's not in Massachusetts, and uh it's a little tongue in cheek, but they had they had a big rent control ballot measure there that was particularly draconian, um, almost as bad as uh uh St. Paul, Minnesota's version, which which which completely obliterated the construction pipeline there. Now it's been though in Massachusetts, it's been uh uh it's been thrown off the ballot by the courts, but only on a on a small technicality, uh, and so it'll be back, but that's really frozen the development pipeline there. So it's really driving it, tax incentives, so anything from opportunity zones to TIFFs to pilot programs, all kind of stuff. Like anything that helps make construction costs more manageable, that makes a big deal. Um interestingly, we still see a lot of mixed-use master plan development where apartments are a small part of that, and maybe there's TIFFs associated with it. Um it's also deals where maybe it's a longer-term owner who's less worried about you know kind of the day one um, you know, rents, and so they're taking a longer term lens of it, that could be a factor. We're also seeing developers just trying to find spots that didn't get as much supply in this last way for whatever reason. They're targeting those under those overlooked submarkets. There's always the story. You have a you know a unique, there's always that unique deal where it's the you know, it's maybe it's a fully entitled site that's shovel ready, you're buying the project, they're buying the site at a at a big discount, you have a great basis. Maybe you're partnering the landowner and have a great land basis. There's something about it that gives you a great story. And then also there's just a lot of value engineering, and I think in and there's a really interesting story too about just uh really improving construction efficiencies in an industry that historically has seen very little of that. So again, there's still some stuff happening, but I mean ultimately it it sometimes takes multiple uh things of these in the multiple categories to make something work these days. All right, so let's look at rents versus supply, and this is one reason I I uh uh uh that that's really made the Midwest stand out. So here is uh rent change year over year, and then this is supply growth. And you look at now down here, we have markets that are actually really high demand spots in places like Arizona, the Carolinas, and Texas, but rents are falling because there's a lot of supply. And conversely, where there's little supply, rents are increasing. And so there's Milwaukee around 4%, and uh and it's not because Milwaukee is that high for demand, I mean it's been steady, but it's really, relatively speaking, little supply, and that's uh in relative to demand, that's allowing rents to move up. Chicago is pretty similar as well. Um and and Madison with more supply is closer to flat on rents right now. But again, it really shows you that it's all about supply nationally. It's like you could people every time there's softness in the market in rents falling in a lot of parts of the country, people always like to invent new reasons why the market is soft. As I think we're just sort of itching to explain something other than the obvious, but it really is obvious. You look at this, it's like it's a simple correlation. Where you're building supply, rents are falling, where there's little supply, rents are increasing. It's just not that complicated. And by the way, for any cities and states that seriously care about affordability, I mean people are also inventing all kinds of stupid things to try to address that. It's really pretty simple. Just build more housing. It's not that complicated. You know, you go to if uh and I I tell people all the time, it's like they got you know their states are trying to find new ways to regulate stuff, and it's like, hey, go to Austin, Texas, talk to them about why rents are falling so much. It's not because there's no demand, it's not because they regulated or added rent control, just build a lot of apartments. It's not that complicated. You just got to build them. Uh so a lot of cities get in their own way and they don't realize how much control they have over it. So this is rent change nationally versus the Midwest. So nationally been around flat. Oops, we pushed the wrong button there. Nationally been around flat, and uh and the Midwest has been around uh two percent. And then in Madison and Milwaukee, again, Madison more supply to work through. Rent's been rents did have that big growth spurt that drove a lot of that construction, now it's come back down, and Milwaukee, uh, as that little supply wave uh crested, we've seen uh rent growth picking back up, and now it's one of the uh top ten markets of the country for rent growth. Uh concessions, these are rent discounts, a lot of squiggly lines here. And so what I would point out is that in in all across the country, concessions are elevated, including in Milwaukee, despite having better occupancy rates and rent growth. But one of the things we're finding right now is that concessions are very sticky. Renters come to expect a deal, and uh and so uh you know what we're seeing is that groups are now kind of pushing the asking rents, but keeping concessions in place to kind of as a marketing tool. And uh, and that's that's that's even true in lower supplied markets, but especially true in these high supplied markets in orange. And you know, I kind of joke. I mean, I I think I think you know, asking rents today, it's kind of like the MSRP for a car. You know, it's like it's a magical mythical number that no one's actually paying. It's really, you know, what is the rent after the concession that really matters? Um and then I won't go through this in great detail here, the rents across different uh the performance across different submarkets in the Milwaukee area. Uh and you can see across the MSA we're seeing uh pretty good rent growth, especially in some of these spots that you know uh that added supply, but now that supply has gone away and now rents are starting to pick back up again. Now uh I want to show you the kind of the steady eddy story of the Midwest. And if if I were, if I if if if any of you are trying to you know raise capital around multifamily right now, this is a chart I would put in your in your in your pitch books, okay? Because what it shows you is the is the kind of the story of like the tortoise and the hare and how the tortoise could win the race in the long run. Okay? So these are rents indexed to pre-COVID, January of 2020. And I'm gonna tell you a couple stories here. This is San Francisco in orange. San Francisco, COVID hits, San Francisco all of a sudden is the worst market in the country. Demand evaporates, rents are down 20%, okay, and they were falling for four years. Well, um, then as a result of that, there's no supply, nothing gets built. Well, and then all of a sudden, you know, there's the the market stabilizes, quality of life improves, the AI job boom, etc. Over the last two years, rents have shot up. In the city of San Francisco, they're up 41% over that period of time, which is crazy. But uh, and and but it's it's but it took them until uh the beginning of this year, uh I'm sorry, uh beginning of la early last year, just to get back to break-even. It took five years. In Austin, Texas, that's the Navy blue line, you know, uh a little bit of COVID slowdown, but then almost immediately, late 20, early 21, rents start shooting up. You know, big demand, limited supply at the time, rents are up 30 percent. Well, what happens? We respond with lots of supply, supply, supply, supply. And what happens, well, people I th I'll tell you this story about Austin. It's like people I hear people think, well, Austin's really no one's moving there anymore, it's slowed down. Wall Street Journal wrote an article that says people are moving out of Austin, moved in. They quote some tech bros who didn't know Austin was hot, so moving back to California. You know, that's there's anecdotes, but that's not the reality. Austin is still, by any demand measure, still one of the hottest markets in the country. And yet rents fell because they built a lot. And so by end of last year, Austin and San Francisco were basically on par with each other going back to pre-COVID. Now, you look at this Midwest, and that's the the gray line, Milwaukee's in green, Madison in purple, uh, whatever that is called color is, and and it's that steady, eddy nature. They didn't do as well as as Austin in the early parts of COVID, and they've not done as well as San Francisco these past couple of years, but it's just that steady, eddy kind of tortoise wins the race over the long run. And that's been, I think, and I think a lot of national investors are now seeing the value of having some Midwest exposure because while it's a lower ceiling, it's also a higher floor. And that's been the story that's played out. And so I know that all of you probably feel like there's been challenges, and I'm certainly sure there has. I promise you, it's been nothing like the roller coaster that's been felt in places like Austin and San Francisco. Um and I also want to talk quickly about Class C market. And I think if anybody is investing in kind of older vintage deals, lower end of the market, this is an important one to understand. Um, so the the orange here is lower supplied markets like Milwaukee. Uh class C rents have been steadily increasing. Um, and you know, the blue is these higher supplied areas where they're actually down eight percent. And so what's happening, I don't I can spend a whole lot of talk time about this, but what's happening is there's this uh font phenomenon called Filtering. And what that means is you build new housing. And by the way, anybody involved with city and state stuff, this is important to know. You hear you know kind of uh well-intended people who don't know what they're talking about saying, we don't need luxury housing. We just need more affordable housing. And it sounds true, like, oh that makes sense. We just want more affordable, you know, we don't need luxury stuff. But what happens when you build so-called luxury, and obviously most of us know it's not actually luxury, it's just what it is. It's class A market rate, that ends up having a filtering effect, which is that when you build that new stuff, it unleash it it people move up to go get lease it. So you have higher income folks and older buildings that move up and they can afford it. And that opens up availability at those lower price points to people who need it. And that's how you create more affordable housing is by creating more class A housing. And and the result of that is that actually puts downward pressure on rents in these higher supplied areas. That's what's happened. We're seeing class C rents falling in these higher supplied markets. Conversely, in areas where there's no supply or little supply, class C rents are still increasing. So if you're a Class C investor, I mean these are very broad brush here, obviously nuanced, every deal stands on its own. I would feel much better about Class C in Wisconsin than I would in my home state of Texas because you're more insulated from that factor and you have more structural under-supply issues that makes class C still appealing. But I think that's gonna be something to really watch, and again, also speaks to the value of construction. Now, having said all that, we generally see the class A outperforming Bs and C's. Um nationally, it's especially true. We're starting to see a rebound in class A while class C continues to cut rents. Um in the Midwest, there's more growth in the C's, but tends to be steadier. The Class A market has been stronger, a little bit different in Wisconsin where the A's and B's, the B's are actually doing a little better than the A's, but it's again, I think again, just these and in some of the Midwest markets, it's just a smoother story than what you see in the Sunbelt and the coastal markets. Um and then uh I'm gonna skip through this. I wanna uh I want to talk about affordability here, make sure we have time for this. So this is uh wage growth in in red, and then I'm sorry, in blue, and then the particularly for young adults ages 25 to 54, maybe youngish adults, which is how they break it out, in red. And then I've got rent growth for apartments, single family rentals, and build to rent. And so uh this I don't think gets enough attention is that we have had almost four straight years where wage growth has exceeded rent growth. And that's a big deal. That means affordability is improving. And the general narrative is that everything's getting worse and worse and worse, and you know, I get it, there's real affordability challenges out there, but this is an improving story. Wage growth has been surpassing rent growth. And while wage growth is moderated, it's interesting, like no one like there's uh where we're so addicted to bad news that we don't really acknowledge the fact that like inflation adjusted wages, especially until these last few months, as CPI's picked up a little bit with the Iran crisis, have that they've been growing. I mean, today's Gen Z's uh population, inflation adjusted, they're making more income than prior generations did. And so the story there isn't pretty good. And while wage growth is moderated, it's still above where it was prior to COVID. So it's a pretty good story. Um, obviously, uh it doesn't mean everything's great, but it it is an improving story. And with all the supply putting down a pressure on rents, rent income ratios are going back down. Uh we're seeing uh in the Midwest, as in in uh in green here, rent to income ratios are now below 20 percent for market rate professionally managed apartments. Nationally it's around 22 percent. And so affordability in that part of the market is becoming more of a tailwind. So even as rents increase more, you know, there's general, I mean, there's always exceptions, of course, every deal is different, every unit's different. But generally speaking, you know, renters are in a position to be able to afford moderate rent increases. Now, if we had an inflationary period like 2021, that's a different story. But in like a moderate, normalized rent growth scenario, you know, renters are in pretty good shape. All right, so how do we square this with a narrative? So I just put some screenshots of some headlines here. Half of American renters pay more than 30% of income on rent, renter cost burdens are widespread, despite cooling rent growth, nearly rent nearly half renter households were cost burdened, rent is swallowing household income. I mean, these are the stories. So, how do we square these two things, like what I'm sharing with you, versus the general narrative on affordability? And this is, I think, uh, this is a little bit of a nerdy chart here, but it shows something very important, okay? This is showing you the distribution of renter households using census data. Uh my friend Ryan Davis at Witten Advisors he put this together using the micro data from the census. And what it shows you is what share of renters of single family rental renters and in green, apart renters in blue, what's the distribution of renters by income level? And then what you re- when when then and so you see, you know, you got higher income up here, lower income down there. So you look at down the down hit down down here, we have a more than a million renters in the US that make no income at all. Um that's a real problem, because it means even if rent is one dollar, they technically can't afford it. Um and and and then you have nearly a third of renters that make less than $30,000 a year. And this is something that like my my friends on uh affordability advocacy and and you know, even cities, states, federal government, and and there's a lot of people out there trying to make a real do make a real difference, and I get it, and I want to be helpful, but the the the narrative is sort of strayed from the the problem the real problem here. Everyone likes to say the rent is too high, rent is too high, and I get it. But also, like the there's a bigger issue here. The the incomes are too low at this level. Because let me give you a stat. If you make less than $30,000 a year, let's say even make $30,000 a year at the top end. This is a third, almost a third of renters right at this point. If you make $30,000 a year, for something to be affordable, you're supposed to spend less than 30% of your income on rent plus utilities. You make $30,000, even at $30,000 exactly, that means your rent plus utilities can be no higher than $600 a month. Now, anybody who operates apartments and single-family rentals, I'm guessing that your operating costs, even without the mortgage payments factored in, just factoring in property taxes, insurance, payroll, maintenance costs, uh, your your your costs are probably more than six hundred dollars a month. I think nationally the number is probably closer to 750 a month. And again, that's not even including the mort mortgage payments. So that's a real problem because it doesn't like there's no amount of realistic there's no realistic rent a third of American renters can pay that actually covers the operating cost of the apartments. That's a real problem. So that's where the challenges are really concentrated. And so let me give you another number here. If you uh this is rent nationally, rent income ratio is people are spending 30% of income on rent, but if you make less than $50,000, they're spending more than half their income on rent. And obviously, this is you know it's it's a it's a it's a spectrum, right? I mean, the closer to zero, the higher the share of income on rent. But if you make more than fifty thousand dollars, they're spending twenty-one and a half percent of income on rent. And again, the higher the income, the lower share of income on rent. So they they tend to rent nicer apartments that are more expensive, but they have higher income. So they're spending a lower share of income on rent. And so that's where the if so again, why if anybody's involved with affordability issues, what I would challenge you to is to think about is that affordability is um is is is it's it we can't think about in these broad brushed, you know, kind of shotgun type solutions. It you have to be very targeted where the needs actually are and focus on where those where we're on the renters who are actually in need, not in the broader population. Uh and then the last thing I want to say about this, this is a chart from Harvard Joint Center for Housing Studies, and it shows you that I think a great story for multifamily and for SFR as well, which is that all the demand is coming from higher income renters who spend 20% of income on rent. Over the last 10 years, we have added more than 4 million higher income renters making more than $75,000 a year, and that's now more than a third of the entire renter population. Um, and uh conversely, we've seen much basically flat movement in in lower uh in moderate and lower income renters. And so, you know, again, there's real challenge in the lower part of the market, but the growth is in the higher end of the market, not just since mortgage rates went up, but it's been happening for 10 plus years. All right, uh I want to get to uh last thing I want to talk about is uh on the capital market side, really quickly. I'll take some questions here. Uh these are apartment sales uh nationally. Uh this is where sales volumes peaked obviously in 21, 22. They've been coming down, leveled off a little bit. Uh but then I want to point your attention to the green line here. This is what share of apartment sales nationally are in the Midwest? And that share historically, pre-COVID, was around you know seven, eight, nine percent. Now it's closer to twelve, thirteen percent. And you know, for a national story, like that's a big jump. You know, but that steady eddy story, Taurus wins the race, like there's more capital that's now interested in the Midwest markets. I think from the institutional perspective, like they probably start, they start with uh Indianapolis, Columbus, Kansas City are now probably like the in-vogue markets, but then that also pushes more capital into other Midwest markets like Milwaukee as well, uh, that are then and that's becomes more interesting. And here's uh a really interesting story to me. In fact, I was talking to some of you guys try to pick in your brain about what's growing on here. This is Milwaukee and Madison uh sales volumes uh for the MSAs, the uh the green is Milwaukee. And what you'll see is like, you know, while we're down below the peak of 22, apartment sales actually exceed pre-pandemic highs. Now, part of that is it was such a low comparison point. We just haven't historically had a lot of volume here in terms of apartment sales, but uh, you know, compared to pre-COVID highs, it's actually up 48%. Compared to nationally, we're down 15% on sales volumes. And then Madison is down a little bit. It's been uh you know, obviously smaller market, a lot more volatile. And then um, this is uh while while apartment uh sales and equity has been limited. Uh I want to tell you that the the what's been um the the other side of this is that there's plenty of debt out there in the market. This is debt originations for multifamily, and so through the first half of this year, multifamily debt originations are on track to be the second highest year ever behind only 2022. But in this year, a lot of this is refinancing activity, not uh new sales. And so I think that that volume of debt, I mean, the you know, debt is widely available in multi-family, especially if you have you know a higher quality deal in a good location, and that's helping stabilize pricing, but also limiting how much is actually available to sell. And you know, there's an article in the Wall Street Journal last couple of days saying that, oh, there's all these great discounts to buy multifamily. And I was like, uh, I I speak to a lot of investment groups, and they're LP investors then ping the GP saying, look, you know, where are these great discounts? And they show them, oh, it's this 1978 deal in a bad part of town in Houston. And it's like, all right, well, that's not what they're expecting. They're expecting like great new construction at mass discounts, and that's not really happening. Um I got a few more slides here happy to I'll share these with everybody, but I'm gonna make sure we have some time for some questions before our hard stops. So um any questions, comments, and complaints? All right here.

I I have the microphone here.

Oh, yeah, um yeah, so my company, we sell a lot of office properties on auction and want to get your view on um conversion. Um because as we bring vacant office, you know, it's who's gonna buy it, right? Or what are they gonna do with it, you know, unless it's a huge basis play. Uh but you wanted to get your view on um multifamily conversion.

Yeah, no, absolutely. I think uh, you know, I would I'll be talking out of both sides of my mouth for a moment. Number one is I think it's generally it's the the story is bigger than the reality. Um I think every city like talks a big game on this, but they don't realize how expensive and complicated these deals are, as I'm sure you know better than most people. Um and so while we do see it, it tends to be very concentrated in in in in certain submarkets where they have buildings that are suitable to it. But obviously, like a lot of buildings just aren't. The floor plans aren't conducive to it. Uh it's expensive. You're going from like one set of bathrooms by the elevator, now every you have to re-plumb the entire building, drill through concrete. Um, and so I think early on a lot of cities were like, oh yeah, let's just repurpose this building for multifamily. And it's like, okay, great, we're gonna need all these different you know subsidies and different programs to make this work. Um and they're obviously very complicated. And uh and I know you've got some here in Milwaukee, and they're you know, you need kind of a uh, you know, a whole catalog of different, you know, partnerships and subsidies to tax credits and whatnot to make those deals work. And so they're great projects, but it's generally at a much smaller scale than people think. But when they happen, they're awesome. And I think capital loves them. It just has to, you just need help to make them work.

Another question? I have one for you.

Please.

Uh we spend a lot of time looking back, obviously, as an economist, you're looking at the historical data. What would you say looking ahead? Do you have any of those future insights you can share with us?

Yeah, so uh my my biggest advice to to to multi-gam, or really just all rental housing investors in general, is I I think I think this next era is gonna be about a flight to quality. Uh, I think the again the affordability challenges are very concentrated at the lower end of the market. Uh the immigration issues that we're seeing right now, reduced immigration, that impacts primarily the lower end of the market. You know, recent immigrants tend to live in really subinstitutional, lower grade, cheaper apartments and single-plane rentals. Um and uh with people renting longer, uh, you know, not just for mortgage affordability reasons, but you know, just people waiting longer to get married, have kids, buy houses, Gen Z tends to favor flex, at least for now. I think they'll change their minds and you know, once they get older. But for now, it's like they see better value in the flexibility of renting versus what they feel is the permits of homeownership. Like that, we're elongating the renter stage of life. And so as they age up and rent longer, their incomes go up, they're gonna want nicer places. And so I think what you're gonna see is, again, more of a flight to quality. That doesn't always mean just class A. It could also mean like the class C deal in a great location where you're dealing, where you're working with like, you know, uh more of the workforce, uh workforce housing, but in proximity to where the jobs are and where the good better schools are and the better lifestyle amenities, et cetera. And so I I think you're gonna see much more, I think that's gonna be the story. It's like, you know, people talk about you know population slowdown and uh and all kinds of other headwinds, and those things are real, but I think what it's really gonna do is uh drive more capital. It's gonna renter demand is shifting to the higher quality locations, and I think you're gonna see capital follow. Uh, and I think it'll be similar to what we're seeing in student housing right now, which if you follow student housing and really the you know what's happening major with universities, it's like you know, you have regional universities that are losing out on enrollment right now, their trends are coming down, while like the big brand name state schools are still going up. And so just because and what they all point to is hey, look, the 18 to 24 year old population is going down in the US. Well, that doesn't create an evenly distributed issue, right? You know, there's gonna be winners and losers, and you know, the big brand name schools are doing just fine, the lower brand name schools are not. And I think you're gonna see the same thing. It's not even just MSA, it's thinking within neighborhoods uh where you have winners and losers. And so I think it's picking the better quality locations that are gonna be really more important this next cycle than this past cycle.

Very good. Well, join me in giving a round of applause to Jay Parsons.

Thank you.

And again, we'll share these slides after uh after today's program. I also failed to thank uh our friend Johnny V, who made the introduction to Jay Parsons, uh, who was in town a couple years ago. So um thank you for that. And thank you for making the trip and good luck on your travels. Thank you all.