As a result of this housing shortage, we have seen tech companies leave expensive urban areas for cheaper cities with strong knowledge-based workforces. Austin, Texas, has been one of the biggest beneficiaries, and real estate prices in that metropolitan area have been on a tear, rising 39% in the last year alone.
We are also seeing strong appreciation in home prices in Sun Belt cities like Phoenix and Las Vegas. Policymakers are zeroing in on single-family zoning, hoping to force local governments to allow multifamily apartments in more areas.
Equity Residential's focus benefits from the mismatch
One of the biggest beneficiaries of the jobs-housing mismatch is probably apartment REIT (real estate investment trust) Equity Residential (NYSE: EQR). Equity Residential develops high-end apartment buildings in urban and dense suburban environments.
The company focuses primarily on cities with large knowledge-based industries -- places like San Francisco, Seattle, New York City, and Washington, D.C. These workers tend to be highly paid, and they prefer walkable urban environments. The increase in home prices (especially in urban areas) means that market rents are also rising.
While Equity Residential found itself making rent concessions during the pandemic to maintain occupancy levels, those leases are expiring, and new leases are being reset to market levels. This will drive earnings (and dividends) going forward.
Rising prices help American Homes 4 Rent
Another beneficiary of this mismatch is American Homes 4 Rent (NYSE: AMH), which buys and builds single-family homes in suburban markets and rents them out. Not only does American Homes 4 Rent receive rental income from its tenants, but it is also seeing steep price appreciation on its properties. When you combine a mid-teens rate of appreciation with rental income, you have returns that are almost impossible to duplicate in the financial markets.
The Millionacres bottom line
Ironically, the COVID-19 pandemic might provide the solution to the issue. The pandemic proved that many businesses can operate just fine with a fully remote workforce. For knowledge-based industries, the idea that workers must live within commuting distance of their place of employment is fast becoming moot.
The ability of companies to source workers from all over the country will remove a friction point that has been with the economy for a long while. In the meantime, the policy response will be to encourage multifamily building in dense urban areas and to attack overly restrictive zoning regulations. Ultimately, the solution will be more building overall.