Ethan Lieber:
Hey Everyone, I’m Ethan Lieber, CEO of Latchel. And I’m here with a very exciting guest today, Jeff Tucker. He’s with the Zillow economic research. Now Jeff recently gave a brilliant presentation at the NARPM Southern States Conference just last month. And we thought everything he shared was so valuable that every property manager should be aware of it. So today, we’re going to be talking about trends for rental demand and what the near future looks like. Welcome to the show, Jeff.

Jeff Tucker:
Thanks, Ethan. It’s great to be here.

Ethan Lieber:
Now to give listeners a bit of background, could you give us just sort of a quick intro on your role and what the research team does at Zillow?

Jeff Tucker:
Yeah. The research team collects data and we build metrics out of all the listing data that we get, both on the owner occupied side of the market and the renter occupied side of the market, that all has to come through the platform at Zillow. It’s a huge wealth of data. And so what we do is try to interpret that, pull out the stories from it, do a little forecasting with it, and then line it up with other data sources. We look at lot at the census or the Bureau of Labor Statistics to get a sense of what’s coming down the pike. And so that’s our role, is kind of to tell the story of the housing market and try and make the digestible to different audiences, different stakeholders who are looking at a different angle on the market. And one of those audiences is the rental side and folks working in property management, so I’m thrilled to be here.

Ethan Lieber:
That sounds like the work you’re doing is way over my head. How did you even get into this? What’s your background?

Jeff Tucker:
Yeah, so I was in grad school at The University of Washington here in Seattle, and a classmate of mine actually came over and joined the economic research team. It sounded awesome. I was like, “You can just do that?” And later, pretty soon, I found an internship on the research team here and just had so much fun doing it, and love the pace of working in private industry, loved working on the actual real world problems and talking to people actually out there transacting and dealing in the real world economy and a little bit out of the ivory tower, so I got hooked and came over into kind of the tech real estate intersection. And it’s a great place to be. Seattle’s a great place to be doing it. And I’ve been really happy at Zillow.

Ethan Lieber:
That’s awesome. And proptech recently has gotten so much attention because of the explosion of technology in this space. And I think for the first time in, well, a long time, maybe since the initial evolution of accounting software for property management, a lot of this technology is focused in the property management sector. So I think it’s really awesome to be talking to you about the rental trends and the data in this space.

Ethan Lieber:
Now at your presentation at NARPM, you gave a lot of amazing data. It was so much, I think it was hard to digest all of it. But I think to understand sort of what the near term is going to look like, it’s always important folks have context and understand what the recent trends were between the pandemic and kind of the lead up to it. So maybe you can kind of walk us through some of the slides you brought, just to kind of show what the kind of more current present state high level trends have been.

Jeff Tucker:
Yeah, absolutely. I mean, it’s been a wild ride. Right? So what I’ve got here is the story of kind of the roller coaster of the rental market. And it’s showing on the left hand side, that’s year over year rent growth based on our repeat rent index that we build off of all the rental listings on the Zillow platform. Repeat rent means we’re actually looking at the same unit, if it got relisted in 2021. How did the rent compare to the last time we saw it on the platform? Build all that together and the story at the moment is where [inaudible 00:05:15] or 16% year over year, which is extraordinary. That’s jaw dropping rent growth.

Jeff Tucker:
It’s not sustainable. If rent kept going up that fast, it would mean the housing market would just eat the world economy sooner or later with that exponential growth. So it has begun to cool down, that’s the other kind of takeaway in the near recent term. A lot of that rent growth heat came in this last winter. And that was kind of the bounce back from a bit of a slump in mid to late 2020. There’s a lot of geographic variation there, where when we say nationally, rents slumped or flat lined for a while in 2020 early in the pandemic, and came roaring back. That’s really kind of averaging maybe two broad stories. It’s averaging the story together of New York City and San Francisco, where rents fell. They flat out, people actually had to cut rents for a while.

Jeff Tucker:
Averaging that story with places like Atlanta, I was just at Southern States Conference, so places like Atlanta, Charlotte, Raleigh, Nashville, there was hardly any slump at all. And if anything, it was just maybe the calm before the storm of rising rental demand. But on average, those two sort of bear market and bull market early in the pandemic got replaced by everywhere becoming a bull market for rental demand in late this last winter and this spring. Now we’re sort of stabilizing, settling into a new normal after that. And we’re trying to figure out where that goes. Yeah, we’re trying to figure out our … Do we just kind of digest this huge one time leap in rent? Or there’s still kind of some heat on rents to kind of keep it at a simmer. That’s a bit of a question, but so far for the last few months, we’re still seeing rent growth around 1% month over month, which still translates to a really fast annual rate of growth if that keeps up.

Jeff Tucker:
So we’re really curious what’s going to happen this coming fall and winter. Are we going to get that kind of seasonal cool down? And I don’t have a crystal ball, but I’ve got some reason for thinking that rental demand is still actually going to stay pretty strong this year.

Ethan Lieber:
For anyone not looking at the graph because you’re listening, it’s a pretty stark image, this graph, because you have just sort of this level 4% national growth. Looks like it dips a bit in 2020 like you’re talking about, then it just rocket ships up to 16%. It looks gnarly. I’m kind of curious. Why do you think there was such a fast pace of growth in rent in 2021? Was it just that people were trying to catch up from all the COVID craziness?

Jeff Tucker:
Yeah, yeah. I think there was some catch up, sort of making up for just freezing rents in 2020 in a lot of places. And that demand, I don’t think we’ve ever seen demand for housing just swing on a pendulum quite as dramatically as we did from 2020 to 2021. And the rental side of the market is generally more flexible, kind of reactive to demand than the purchase side. So I think a lot of renters just moved home with their parents. We actually have data proving that a couple million extra young adults moved back in with their parents in 2020. Folks were afraid to go out and sign for a new lease. They’re working from home and they didn’t know if they even needed to move to that new city for the new job, so a whole lot of people kind of froze in place and weren’t so sure what was going on.

Jeff Tucker:
And then by 2021, people got vaccinated by that summer. Businesses said come back to the office by that summer. All kinds of actual gatherings and night life and restaurants was all reopened. Sports came back. It was the whole reopening of the economy, and so suddenly all these people came out of the woodwork looking for apartments, looking for single family homes, looking for a place. Not only were they coming back, but their demand I think expanded. So someone, maybe a 20 something who would have otherwise gotten a roommate said, “You know what, I think I need that second bedroom for a home office. I’m getting my own place.”

Jeff Tucker:
So two people do that instead of just splitting a two bedroom. Or a family with maybe a kindergartner, who thought they could kind of squeeze in their urban apartment for another couple of years, they say, “No, that’s not going to work. We had to do school at home, so we need to rent a three bedroom single family home now.” So all these people, not only did they come back, but they wanted more space. Everyone wanted a home office and were a little wary of roommates for a while, so it more than made up for that demand drop, I think.

Ethan Lieber:
This is almost like you had, if there were folks that would’ve normally have gone and lived together and consumed one unit of rental space, you now have this trend with the higher, higher, and people have more income. Right? Housing generally became more affordable because of that, where they’d say, “Oh, rather than us all going on one unit, we’re all going to go get out own.” And now you add prior, maybe it would’ve been one unit of space that’s now represented in three, four units.

Jeff Tucker:
Absolutely. Yeah. Same population of people, but filling more units. And so we saw, what does that translate to for property managers and for folks watching the metrics in the market, it translated to lower vacancy rates. So vacancy rates just plunged. Look at a national figure from the census, it’s down to the lowest level since 1981 or 1982. There’s been a lot of these economic variables where we say, “This is the most extreme number in 40 years,” so we’re having to open up the history books to see. What was the market like back then?

Jeff Tucker:
So the super low vacancy rates meant that, yeah, suddenly property managers, anyone setting rents realized they had a list of people lined up, a waiting list lined up for these vacancies. People started hearing about actual multiple offer situations of people saying, “I’ll pay over the list rent. I need a place, I’ve got to move in soon.” Property managers took notice and a lot of leasing agents took notice and said, “Okay, we’ve got a lot of room to bump this up to find that new market clearing rent.”

Ethan Lieber:
I do want to dig into how that trend, the increase of income and things being more affordable and vacancy rates, I do want to dig into how that affected single family versus multifamily. But I’m wondering if before we jump in there. Is it worth talking about where you anticipate, how you anticipate vacancy rates changing going forward?

Jeff Tucker:
Yeah. It looks like they kind of bottomed out. It looks like so far this year, vacancy rates have started to creep back up, which I think they’re moving back toward the more normal, healthier kind of level. It’s not healthy for everyone to just be scrambling like that, and for renters to have to submit so many applications and take months and months to find someplace. So a bit higher level of vacancy will be healthier for the market. And it is reflecting those moves on kind of right sizing the rent to find that market clearing rate.

Jeff Tucker:
I think one of the big questions, and we’ll probably touch more on this in a bit, is just what’s happening this year, especially this summer, what’s begun to happen to kind of the cohort of renters who are thinking about buying their first home. And this takes up a lot of my day job, is noticing that they are dropping out in huge numbers from the purchase market. They have shown up ready to move out of the rental, they’re not going to renew. They’re going to go buy that first home. And then they say, “Whoa. Wait a second. Mortgage rates are 5.5%. That means my budget doesn’t buy nearly as much house as I thought it did. Oh, and the prices are 20% higher than I think makes sense.” Either I don’t think I can afford it, or in some cases, they go and make and offer, and then their mortgage lender says, “You can’t afford that. We’re not going to qualify you on that loan.”

Jeff Tucker:
So a bunch of those would be buyers are turning right around and saying, “You know what, I think I would like to renew my lease.” And that’s a big factor that I think could keep those vacancy rates still in a pretty low ball park.

Ethan Lieber:
Let’s jump to this topic now, and we’ll come back to this whole single family versus multifamily difference. But if we’re talking about renters that are going out looking for homes, and in prior years, these folks probably would’ve no longer been renters. They probably would’ve bought their home, and now the amount of renters goes down. And if we’re seeing more and more folks with that type of wealth, obviously these folks are higher earners, as they’re looking for homes, but just feel either priced out because mortgage rates are high because the housing market, maybe they feel like it’s a little inflated right now. Maybe they’re kind of chasing the dream that the market deflates a bit and things become more affordable.

Ethan Lieber:
You have all these high income renters that in prior years may have not existed. What does that mean for the industry?

Jeff Tucker:
Yeah. I did have a chart, just like the number of people kind of in this bracket of, this is sort of younger renters, so 25 to 44 year olds earning, where the household earns more than $75,000. That’s almost doubled since 2013 from about two million of those households getting up over three and a half million households like that. So that is really kind of changing the composition of who are renters today.

Jeff Tucker:
Yeah, as you said, sort of upending maybe some of those notions about the budget and maybe expectations when they’re looking for a place to rent. So I think … What does that mean? I do think it means, for one thing, it helps explain how renters have been able to digest those rent increases that we just saw while still filling those units, still keeping those vacancy rates really low. What do these higher income renters look for, kind of higher income, but lower age, kind of younger renters look for? I think a lot of them are looking for some of the amenities.

Jeff Tucker:
If you want to kind of keep them, you need to kind of think about: What are some of the lifestyle opportunities that they’re comparing in the world of maybe buying a single family home as the median and next step? What is it about that, that they were looking forward to, or that is so important that they feel like they can’t get in the rental market? And if you can supply that, you can kind of fill a need. So I think a lot of that is outdoor space. When we’ve asked renters what they’re looking for, it’s both a big pandemic trend. Right? People want outdoor space.

Jeff Tucker:
But it’s also just something, a place to have a gathering. Right? You want to have a bunch of friends over for your birthday. You want to have a place for a barbecue on Sunday. So having kind of those outdoor communal spaces that are really easy to use, in a lot of ways, that can be even a better experience than being the homeowner doing that because you don’t need to worry about buying charcoal for the grill and maintaining all this stuff, or mowing the lawn. Having a place where there’s a big patio and some tables, and you know you can have a cook out, that kind of thing is really appealing to people in this age range and can provide just some of those things they’re looking for, so they say, “You know what, I’m getting what I need while I’m renting here.”

Jeff Tucker:
That also, and at the same time, it’s not just about serving the yuppies or the folks without any kids yet, because those same spaces do a great job at serving families with kids because actually, we know median age at which people start having children in the US, it’s actually a lot younger than the median age of buying your first home. So those ages are more … I mean, it’s sort of changing, but more like late 20s for having your first kid, but really mid 30s, maybe 34, 35 for buying your first home. So we know there’s a whole lot of renters out there, including in multifamily complexes, certainly also often going for single family homes, but looking for kid friendly spaces.

Jeff Tucker:
And so if you can … That same space that will do a great job hosting an evening get together for the childless millennials is a great place for that four year old’s birthday party on Sunday morning, and having the kids run around, having some space outside. And again, that’s something where actually, an apartment complex could serve that need much better than someone whose own little postage stamp backyard in the city might actually kind of struggle there.

Ethan Lieber:
So how does this translate to the trend in single family versus multifamily? Do you have an opinion on what that has looked like and what it will look like?

Jeff Tucker:
Yeah. So looking at the demographics here, we know, and actually, I had a little bit of sort of census data that I think gives a sense of which way this is headed, we know that as folks get a bit older … So this is a bit to digest here. It’s looking at renter households over the lifecycle. So as you get older, kind of the peak number of renter households is folks in their late 20s. That’s the second bar. And as you go beyond that, we know on average, people transition at a certain rate into home ownership, so that the count of renter households goes down.

Jeff Tucker:
But the share of renters who are in single family homes rises pretty fast, so actually, the peak number of single family renter households is among 35 to 39 year olds. And what that says to me is, well, actually kind of combined with one other piece of information. So got this, keep this in your mind, the share of renters who are in single family homes rises really quickly from your late 20s into your 30s. But what’s the other story going on in the US right now? This is a chart basically showing a wave of people centered around being born in 1990. So now their age this year, it helps my little sister was born in 1990, so I can keep in mind she’s turning 32 this year.

Jeff Tucker:
So a wave of people kind of centered currently around 31 to 32 year olds was born around 1990, means there’s several million extra people kind of in this cohort, this core of the millennial cohort. They outnumber the baby boomers at that same age range, which actually happened back around 1990. So big enough generation to coin the term baby boom is now outnumbered by the millennial baby boom. They’re entering exactly that period where we saw the share of renters who are in single family start to rise substantially.

Jeff Tucker:
So what that says to me is there is a big shift underway, where this big cohort of folks is coming through. They’re going through those lifecycle changes. And yeah, a lot of the time what they’re wanting is those features that you get from a single family home, more privacy, maybe your own yard. And that is why I think absolutely the trend for the next couple of years is extra demand pressure on the single family rentals. And like so many trends, it was underway and had some of these fundamentals that we could see in demographics, was underway already back in 2019. This was a talking point in some charts I started making in 2019, and like so many other trends, got supercharged by the pandemic, where a lot of folks who might’ve said, “Yeah, we’re holding out another couple of years. We can still fit in this little home,” instead made the leap where they’re like, “Okay, that does it I need a bigger space or I need my own space.”

Jeff Tucker:
And for some folks, that means a bigger apartment. For others that means making a jump to a single family home. And a lot of the time when people make that jump, especially initially, they’re actually jumping to rent a single family home when they move into one for the first time. So that trend is just underway and just got supercharged by the pandemic.

Ethan Lieber:
Yeah. Does this mean that we could assume or expect that the single family home rent prices are going to be, the growth rate might outpace the growth rate of multifamily rental prices?

Jeff Tucker:
I think it’s a strong reason to suspect that, yeah. And that does go hand in hand, when we look geographically at where rent has grown the fastest in the last couple years, it’s been markets that are disproportionately single family rental markets and generally markets with bigger and newer rental units. To some extent, yeah, that’s the mix too, where really the weakest rent growth of all was San Francisco, New York City, and Boston. Those are some of the markets with the absolute highest share of rentals that are multifamily, so it definitely goes hand in hand. And I do think it’s cause to be more bullish about rent growth for single family than multifamily.

Ethan Lieber:
This does sort of help explain why there’s all this money from the institutional PE funds pouring into single family for the first time. If they’re looking at this data, they’re probably thinking here’s where the sustainable rent growths are going to happen. And here’s where the real opportunity is right now.

Jeff Tucker:
I do think that’s part of the story. And that reminds … I mean, that was another kind of theme that I was sharing here, if you mind if I jump to it. This theme that, a bit of a scatter plot here, but what it’s showing is on the horizontal axis is monthly rent, or monthly rent index in the 50 biggest metro areas in the country, and on the vertical is: How much was a monthly mortgage payment for the typical home price in that city one year ago, spring 2021?

Jeff Tucker:
And there’s a 45 degree line, so everything below 45 degree line is all these places, the majority of places in the country and certainly true for the nation as an average, it was cheaper to pay the monthly mortgage bill on a home in most of the country than it was to pay the rent on it. So if you could just … This was a billion dollar bill lying on the sidewalk for anyone who could just walk right into the market. Any investor could walk right in and say, “Hey, I’m going to buy this house in Houston. I’m going to pay a $1500 mortgage on it, and I can rent it out for … ” Sorry, no. I’m going to pay $1000 mortgage on it, but I can rent it out for $1500 or $2000.

Jeff Tucker:
That was basically free money with that kind of arbitrage opportunity. Well, fast forward same exact data this May, so this spring. It’s flipped, so now the vast majority of metro areas in the country, that mortgage payment because mortgage rates rose so much, they basically doubled in two and three quarters, jumped to five and a half in the last year. Now in the vast majority of places, that’s no longer true. You could either say someone came along and picked up that billion dollar bill or maybe the wind started blowing at the Fed and it blew it away with the change in mortgage rates.

Jeff Tucker:
So I guess [inaudible 00:27:51] is this was such … Looking at that, it makes sense to me that there was this huge profit opportunity for investors to go buy homes with that super cheap credit back in 2021, turn around and rent out those same homes, finding those deals is a lot harder today. But certainly, I think you’re sort of asking what explains that flood of institutional investors, as well as a lot of mom-and-pop investors, absolutely a lot of small time investors too, jumping in there, buying these homes and renting them out for much more than the actual kind of carrying cost.

Ethan Lieber:
With that kind of inversion, where all of a sudden it’s a lot more expensive to pay a mortgage than to rent, obviously there’s this correlation, this interplay between cost of the mortgage and rent because 30% of all supply ends up being rented, so there’s that factor in place. But how do you kind of see those two pieces inter-playing? If mortgages just get really expensive, does it feed back into cost of rent, or not really? Is there enough hard line that these can be separated and looked at independently?

Jeff Tucker:
Yeah. Honestly, we’re kind of moving into uncharted territory with these things just having gotten so expensive, and then swinging so hard one way or the other due to the big shock to mortgage rates. I think what the market’s looking a bit like to me is that it’s a bit out of equilibrium. And economics can be pretty good at predicting relationships that should kind of hold an equilibrium. But often, that transition path, the actual reality of how do we get from here to there is a bit trickier.

Jeff Tucker:
So thinking about rents, there are some kind of theoretical relationships, where we should kind of see that cap rate on rentals lining up with the cost of capital or the cost of a mortgage, a little fiddling around the edge with net operating income and stuff. But if we think about that, so if a cap rate broadly is just your income, the income a rental generates divided by the cost of it, well, if that should really be rising because mortgage rates are up so much, there’s two ways to get there. It’s a ratio. Right? A cap rate’s a ratio.

Jeff Tucker:
So we can make that ratio bigger by raising the top, which is rents, so rents could climb a bunch as a consequence of this. You can also shrink the denominator, so the price of those homes could go down because it’s not as valuable to the next person who comes along who might buy it because they’ll have to pay so much to borrow to get it. So I kind of see, my best guess is we get a little bit of adjustment on both ends that this change in the relationship is a reason to actually expect market rents to keep climbing at a pretty steady pace, sort of that required rent to match the borrowing costs of the next investors to come along needs to be a bit higher, and/or that investor needs to get a bit more of a bargain on the purchase price when they buy.

Jeff Tucker:
In the meantime, it seems to me there’s this gap opening up, like a bid ask spread, where for an investor who owns that home now and had some fixed rate, 2.7, 5% mortgage, they may just not get many offers that look attractive to them, or they say, “I don’t really want to give up this home because when I give it up, I’m also giving up that cheap mortgage,” whereas someone coming along doing the proforma, thinking about buying it has that much higher hurdle for their cap rate where they say, “Hey, your rent role doesn’t really justify as high a price as you’re looking for.”

Jeff Tucker:
So in the meantime what could happen for a lot of folks is I think if I owned a bunch of … If I were a big investor with a bunch of well performing rental properties, seems like a good time to sit tight because what people are willing to bid at the moment is not as much as I’d be asking, essentially is one consequence of that gap.

Ethan Lieber:
And this is probably super meaningful for our audience who’s listening in, who in the last couple years the big challenge for a lot of third party management companies was losing clients, the landlord that lose their client, who’s the landlord, because folks were selling off units because market was kind of out of whack. And this sounds like things are kind of adjusting in such a way that at least if you’re a third party manager, you’ll probably see the retention of those units increase because your clients aren’t going to be selling off units anymore.

Jeff Tucker:
Exactly. Yeah. I think that sort of in this market, I would absolutely expect kind of retention to increase. And in terms of finding new clients, kind of those new investors, I think kind of the origin is going to be shifting, where I’ve already talked to some friends or coworkers who need to relocate or something, and are moving to a new city. And they’ve gone listed their house, or they’re about to, maybe here in Seattle. And they’re seeing, you can open up the map on Zillow and see just filter to listings that cut their price, listings with a price cut. It’s gone from roughly none of them six months ago had a price cut to, one quarter, one third, 40% of homes on the market have had to cut their list price.

Jeff Tucker:
So someone who’s got to move, they’re not going to occupy this house anymore, would have just sold it, they might now be thinking, “You know what, this doesn’t feel like a great time to sell. I don’t want to be languishing for two months and then it’s another month to close, and worry about the buyer canceling on me because cancellations are way up. I could just rent this home out.” And when I do that, again, even for that kind of bid ask spread problem, coming from the mortgage rate differences is opening up just for owner occupant standard home sales too, where thinking about selling that home, I’ve got a 2.75% mortgage on it. The person who’s thinking about buying it would need to be paying twice as much interest every month, so they probably won’t offer so much.

Jeff Tucker:
So a lot of these folks who might be selling the home that they’re moving out of and relocating, I think a lot of them are going to take a really hard looking at saying, “Maybe I should rent that out instead. But I could really use a third party property manager because I’m selling it because I’m relocating. I’m not going to be around to handle the nitty-gritty.”

Ethan Lieber:
Yeah. That’s interesting. I didn’t think that would be an outcome of all of this, but it sounds like the actual market for third party managers may meaningfully increase in the next few years. I think it’s typically been sort of 3% of rentals are professionally managed, 70% are kind of DIY. It’ll be interesting to see what that split looks like in the next … Are there other trends that you think are going to impact that split, like how many folks go to professional managers versus managing homes themselves?

Jeff Tucker:
Yeah. I think cutting the other way, I do wonder about the impact of remote work and kind of working from home is that some more of those kind of potential DIY managers may think, “Okay, if I’m working from home, maybe … ” And if they just relocated across the neighborhood or some, well, maybe if I’m working from home, I’ll be around and I could pick up the phone. I could meet some contractors a lot easier. So maybe that could kind of cut the other way, where more people think that they could kind of do it on their own.

Jeff Tucker:
It’s nearly a 100% rate at which people who attempt that discover that it’s a lot more than they bargained for, a lot more than they thought it would be. Some folks grind through that. Others realize there’s a whole industry of people they could hire to do a better job at this than me.

Ethan Lieber:
I do kind of wonder too if the trend of having higher income or sophisticated renters that have higher demands on service and convenience, if that puts a lot of pressure, even more pressure, I mean like managing a home is really hard. Add on top of that a renter that has this certain idea behind the service level you’ll deliver and all this stuff, it gets even harder. I wonder, have to imagine that trend is probably going to push more of the DIY folks to say, “All right, I’ve got to go find a professional to do this. This is just too much for me.”

Jeff Tucker:
Absolutely. And another trend that’s making it so much harder for just a mom-and-pop kind of DIY situation is the shortage in the building trades and the contractors, just finding. I’ve heard this just from so many people I know here in Seattle and in other cities, just getting a plumber out when you’ve got a water leak, getting an electrician to deal with a problem is so hard for kind of retail customers without some actual connections or some really systematic ways of keeping relationship with a plumber, an electrician and so on, pest control, whatever. All these trades are in such short supply right now. That labor shortage has been one of the most acute of any industry.

Jeff Tucker:
And I think we’re already definitely seeing a new construction slowdown. Builders are trying to kind of trim their sales limit, any damage that they get from a sales slowdown right now. But as more folks kind of hunker down and say, “Okay, I want to stay put, find a way to maybe build, maybe expand the home I’m in, maybe remodel the home I’m in,” the remodeling industry I think is actually just going to pick up steam in the next couple of years.

Ethan Lieber:
Really.

Jeff Tucker:
People trying to expand that home where they’ve got that 2.75 interest rate, that suddenly adding an extra bedroom and bathroom looks a lot more attractive than paying 5.5% to move up to a slightly bigger home. That’s just going to make the labor shortage of plumbers and electricians and carpenter, drywall guys, so much worse. So I think that’s another thing where just DIY folks will be, they’ll be caught between that. Right? They’ve got these kind of higher income renters in a nice single family home, who they expect their water to be working, and they expect that if there’s a problem with the plumbing that it gets fixed before the kids get home from school. And they’re calling the landlord, who says, “Wait, hang on. I’m in a Zoom meeting and I can’t find any plumber who picks up my calls.” That’s a nightmare for everyone. Right? So that’s a landlord who’s looking and saying, “Okay, I’m done being the DIY guy.”

Ethan Lieber:
I think the bad news for listeners is even professional property managers are going to have this problem. Unfortunately, they have this scale and focus to create these great networks, but if there’s more and more remodel jobs, they have to fight against that because there’s an incentive for all these contractors. I’ll take the work that pays me a lot more. A clogged toilet, eh. I’ll go do the remodel for a few thousand dollars. So it sounds like that’s going to continue being a challenge.

Jeff Tucker:
That’s very fair. At the end of the day, it’s more like this is a big challenge facing anyone managing a property. And it’s more like maybe it’s a challenge with focus and a plan that actually professional property managers can better meet. But it doesn’t mean it’s not a challenge for them all.

Ethan Lieber:
Yeah. Absolutely. I have a couple maybe just thought provoking questions just to kind of get your opinion on this. You might have some data or slides that can accompany this. One of the things we’ve seen much more common in single family, and I think it’s partially because we’ve seen the rent prices increasing, and the renters have higher demands, but we’re seeing property managers introducing things like amenity fees on the leases, and then providing sort of convenience applications, digital applications, adding those fees onto the rent. And I’m curious from your view. Are you seeing this being kind of widely adopted everywhere? Are there specific use cases for it? Any opinions on what that looks like in a couple years from now or in the near future?

Jeff Tucker:
Yeah. I think it’s a trend that in some ways can be traced back to rising costs. And managers are looking for a way to pass those on or find a way to cover them in a way that’s not quite landing just on that contract rent. So yeah, because so many of those costs … And that’s a good reminder to kind of the backdrop of, yes, this was very rapidly rising rent, but this is the highest inflation environment just period, since the early 1980s. And so speaking as well about labor, the cost of getting the plumber out, or the electrician, or getting any work done, is rising at double digit rates at this point.

Jeff Tucker:
So I do think trying to sort of pass those on in a way that’s transparent is part of the origin I think of some of those amenity fees. It’s a reminder too of, hey, don’t forget you’re getting all these things with your monthly rent. Life gets busy. Maybe you forget about it. But it is kind of a reminder of what are some of the extras that buys, rather than just that big sticker shock on the rent. I think it’s bound to continue being more widely adopted though.

Ethan Lieber:
Yeah. One of the things I think is kind of unique about folks that are recently adding amenity fees and things like this is when you’re going into a renewal conversation and you don’t want to miss out on the 16% increase in the last year, and you’re going to do a big increase, it feels I think for the leasing agents, property managers that are doing the leasing and renewing, it can feel a lot better when you’re like, “Hey, here’s the new rent. But we’ve also added all this wonderful stuff,” versus, “Hey, your rent went up and you’re not getting anything different. You’re just going to pay more for what you had last year,” it can kind of change that conversation.

Ethan Lieber:
And ideally, in the ecosystem where they can see rates are super low, you’re creating a great relationship with that resident. You know they’re not going to leave. They’re willing to pay more. They will stay. I think what would be interesting for our listeners is a little bit of line of sight on kind of yeah, vacancy rates are really low, but I think it’d be helpful for folks to know. When turnover is happening, are there common patterns or reasons? Is it geographic primarily? Is it just life circumstance? Vacancy rates are super low. But what’s sort of the big contributing factor when it is happening?

Jeff Tucker:
Yeah. So when we ask, we do have a big annual survey of renters, and particularly renters who moved in the last year. So we get some picture of why they moved. And I mean, the tough news is a lot of it is outside of managers’ control. People probably don’t like moving, and so it’s usually big life events are kind of top of the list, I got married, or I had a kid, or certainly, I got a new job in another city. These are top reasons to move. But also way up there is the rent is too high, or I think I found a better deal across town. So being plugged in on those rental negotiations and I think it’s a really fine line to walk of, I’m not an expert negotiator, but it’s a fine line to walk to find a way for people to maybe know that things are negotiable if it would …

Jeff Tucker:
If you ask for X increase, that’s the proposed rent increase is X, but still would’ve been worth it to keep them for two thirds of X increase. There might be a lot of people who get that letter in the mail and they just hop on Zillow or whatever, start searching for a new place. And they’re just like, “I’m out of here. I’m never talking to my landlord again,” pretty much. So when there might’ve been a happy medium there, but people just say, “That’s the end of the negotiation.”

Jeff Tucker:
So I think those are some of the problems. There were a couple survey questions where we asked, and I’m not sure this is the reason anyone necessarily moved, but just a nice feature people report wanting to do is paying their rent online. Generation zoomers, generation Z, millennials, often the rent is the one last thing in their lives where they need to find a stamp and an envelope and stuff. And they otherwise just don’t do that, or they don’t have a checkbook. So what we’ve found was we surveyed the whole age range, and even … So basically, zoomers, three quarters of gen Z said they would prefer ideally to pay their rent online, two thirds of millennials, and then even over half of older folks also said they would prefer to pay their rent online.

Ethan Lieber:
I have to ask. Of the 25% of gen Z that didn’t say they prefer online was the preferred method cryptocurrency or something? Did 25% literally say they wanted to pay by check?

Jeff Tucker:
I don’t know. I’ve got to follow up on that. Only thing that might spring to my mind, folks that are savvy or watch out for if you’re going to put a big charge on a credit card, sometimes it comes with that 3% fee for it. Maybe that’s something that the really budget conscious zoomers are saying, “You know what, I’ll find a check if it saves me 3%,” which that is coming out of someone’s cut when you do it with the credit cards.

Ethan Lieber:
Yeah, yeah. If you don’t have that, I can’t even remember the last time I wrote a check. But I think I was using PayPal for rent at one point, but even that seems kind of weird to use PayPal for rent. Or maybe it was, I don’t know, something like that. That’s super interesting. I’m wondering. Were there other questions? When you did your presentation at NARPM, were there some really burning questions that you got that you think would be relevant for us to go through right now?

Jeff Tucker:
A lot of questions about a recession, a lot of question about inflation. It’s dicey right now. It’s looking like a real knife edge about how things are tipping in terms of the economy as a whole. I think what we’ve seen right now is that people’s real income, so kind of actual and some [inaudible 00:51:22] inflation is really getting eroded by the high rate of inflation. It’s causing a lot of people to eat into the savings that they’ve built up actually during the pandemic. A lot of folks checking account balances have been in really good shape ever since the stimulus checks, or cutting down on some of the expenditures in 2020. Those excess savings are kind of getting eaten away, and gas and groceries, health insurance, all these things are going up at a really fast rate, so that is eating away at a lot of folks’ actual wage gains.

Jeff Tucker:
I think for the impact on the rental market, I think the biggest thing to watch out for is the layoffs. We’re actually a seeing a bunch of [inaudible 00:52:14] aggregate numbers like GDP and income, which were kind of flat lining in real terms. But we still have very low unemployment rate, still not very many initial unemployment claims. That’s showing still a labor market that’s in this weird state where a lot of the time the biggest problem is not so much job openings, there’s a lot of them, but finding people to fill those job openings. So it’s not really yet a case of mass layoffs or anything. That could come. It’s where it feels like the Fed is trying to dial up the pain on the economy with interest rates and monetary policy, dialing up the pain enough to cool off inflation, but without laying everybody off.

Jeff Tucker:
I’m glad it’s not my job to figure out how to do that because there’s a lot of competing data. And certainly, one thing’s for sure is that it’s definitely cooling off the purchase side of the housing market in a big way. Actually, honestly, in those unemployment statistics, some of the hardest hit industries already are loan officers from mortgage lenders, and I think a lot of real estate agents are seeing those commissions kind of peter out this summer, at least relative to what they may have been expecting.

Ethan Lieber:
Yeah. That’s interesting. It potentially creates opportunity for folks that have already built management companies, that there may be these not really qualified real estate agents looking for jobs in more kind of stable, more robust businesslike property management. And maybe it becomes easier for these companies to get the talent they need, which is also a tough, tough thing in property management. This really high … In the last couple years, there’s been such high employee attrition rates, it’s hard to keep good people, hard to get good people. And maybe that eases some of that struggle there, and you see some folks moving from transaction side to the management side. But yeah, probably still too early for us. And I think watching for the layoffs will be the big thing, if we see lots of layoffs happening. The other path, another way to look at it is sort of where there’s layoffs happening. I don’t know if we know yet if this is going to be confined to kind of another mini tech bubble, where it’s like the tech companies are the ones that do layoffs because those are the ones that were over-valued [inaudible 00:55:04] hotter market.

Jeff Tucker:
So far, that’s a good thesis. I think that really explains what we’ve seen, what we’re seeing so far in Q two this year was for the purchase side of the market, there’s a huge slowdown in sales, as well as price growth on the West Coast, and especially the Bay Area, also LA and San Diego even, and also Seattle. Seeing that here myself in my neighborhood here. These are markets, if you look at the NASDAQ-

Ethan Lieber:
Wow.

Jeff Tucker:
There’s been a lot of red ink for companies listed on there, and layoffs, or shrinking hiring, or we’re even hearing about Google and Facebook kind of warning that it’s not going to be quite such red hot hiring sprees as they’ve had. So that definitely slows down demand I think in some of those West Coast markets, and could impact even more of the country since so many of them have remote work. And we see tech workers kind of less geographically concentrated than we used to.

Ethan Lieber:
Yeah. That’s interesting. Well, fingers crossed we come out of this relatively unscathed for everyone listening. I mean, property management’s so robust. I don’t know. I think worry about the economy’s probably the last thing a property manager has to worry about. So many things have to go wrong for the rental markets to be negatively impacted in a way that would prevent a property manager from building an amazing business. But on that note, I just have one last question because … And I think this is a question everyone listening is going to have, which is, there’s so much data here. There’s so much good things to dig into, and folks are going to want to dig in more. What are the resources available to them? Or where can they go to learn more about you and connect with you? Where do we want to send everyone?

Jeff Tucker:
Sure. Thanks. Step one is our research page. It’s really simple. It’s zillow.com/research. And we post market reports kind of summarizing this every month, as well as a lot of one off research projects. And we’ll be rolling out more results from our latest 2022 renters focused segment of the consumer housing trends report. That’s our big annual survey nationally of renters. So keep an eye on zillow.com/research.

Jeff Tucker:
You can find me on LinkedIn. I’m Jeff Tucker. And I’m on Twitter. My name’s too common to have actually snagged the name, but I did at Jeff_Tucke, so I just cut off the R at the end of my name. I’d also be remiss if I didn’t recommend that your audience check out Zillow Rentals. I’m told we had 1.4 billion visits last year. It is a massive, arguably most visited rentals network online. So we get a ton of leads, so folks on there get a ton of leads. And they’re high quality leads, so over three quarters of the leads filled out a renter profile, so they’re already coming in with a lot of that information prefilled. And it leads to a higher conversion rate because you’re already kind of a step into the process. So I think it’s a great product and I hope your audience considers it.

Ethan Lieber:
All right. That’s beautiful. So head over to zillow.com/research for more of the industry reports and all the good stuff Jeff puts together. You can hit him on Twitter at Jeff_Tucke. Is that right?

Jeff Tucker:
That’s right. That’s it.

Ethan Lieber:
Perfect. And then obviously, head to Zillow Rentals. I’m pretty sure everyone listening already does, but if you don’t, go check it out. Definitely worth the expense to get these units leased fast to the right people. Jeff, thanks so much for joining, the presentation at NARPM was great. This presentation was amazing. I love that we got to dig into some of the questions that weren’t surfaced at NARPM Southern States. Would love to have you back in another few months when we have some more data on where things are heading and how this potential recession has shaken out. So maybe we’ll go schedule that. But super appreciate it, thank you so much for bringing this information to everyone.

Jeff Tucker:
Thanks so much for having me on. It was great chatting with you.