Private Real Estate Developers Build Communities

• by Matt Rodak
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‘Here Comes the Neighborhood’ By Matt Rodak Since I founded the business that is now Upright, formerly Fund That Flip and FlipperForce, I have been beating the drum for the entrepreneurial residential real estate developer. I have long been convinced that local, private real estate developers play a vital role not just in our economy, but in the life of our nation and its neighborhoods. We recently published research that shows definitively how the work of individual developers not only has a positive impact on the local economy, but creates a host of social benefits, as well. The ‘Here Comes the Neighborhood’ report draws on multiple authoritative sources, as well as our own original research, The report paints a comprehensive picture of the positive impact that our active investors and others like them have, every time they build or rehab a property. We want everyone to recognize the vital role of private developers, so we have made the report available to download for free from upright.us/neighborhood. I can summarize the main conclusions in three points:  »         Communities and neighborhoods benefit economically from redevelopments, in both the short and long term.  »         There are many less tangible, but no less real, social benefits that in turn contribute to stronger community-building.  »         Private real estate developers play a vital part in solving our nation’s chronic housing shortage. The Economic Benefits of Neighborhood Developments Study after study bears out our lived experience — that new developments increase the value of comparable neighboring properties, thus benefiting the whole community. Our analysis across multiple zip codes where new developments or rehabs have taken place show an increase in the value of neighboring residential properties of between 4.8%-13.0%, outpacing their local markets. But that’s not all. Rehabbing properties and building new ones creates jobs, and not just the obvious construction jobs. Small businesses like shops and restaurants are more likely to locate themselves on attractive streets, without vacant lots or dilapidated properties as their neighbors. The economic benefits of this continue to be felt long after the developer has moved on to their next project. Our team conducted some analysis of the economic value our investors generated in 2022: $800M of income last year, plus an estimated $40M of income annually on an ongoing basis. On top of that, we created 8,500 jobs, with $486M in salaries, wages, and tax revenue. And that’s just our company. Versions of this happen across our industry. ‘The Mister Rogers Effect’ The positive economic impact of private real estate developers is beyond dispute. I have long believed that the effects of new developments go way beyond dollars and cents. While economic data are easy to come by, less attention is paid to the effect of the built environment on factors such as physical and mental health. We have uncovered multiple pieces of research that show the negative effects of living in a neighborhood with vacant lots and/or rundown properties. Vacant, rundown properties may lead to an increase in crime, are major fire hazards, and can be shown to lead to anxiety among those who live nearby. Transforming those eyesore or unsafe sites into attractive homes not only enhances the visual amenity of the neighborhood, but academic research suggests it also contributes to an improvement to the well-being of local residents. People in neighborhoods that have benefited from the redevelopment of housing are happier, safer, and able to enjoy better physical and mental health. We call this ‘The Mister Rogers Effect’, after the children’s television presenter who championed neighborliness. “There goes the neighborhood” is a typical response to negative developments, be that the shuttering of a local business, the boarding up of vacant buildings, or the building of an unsympathetic or incongruous property nearby. But it seems the opposite is actually the case. The development of attractive new properties, or the ‘saving’ of derelict or rundown properties through sensitive redevelopment, can contribute to the creation of a happier, healthier neighborhood. All the evidence suggests that every time a developer takes on and improves a property, they are contributing to ‘a beautiful day in the neighborhood’.  That is something we can all feel good about. But it is not even the most important contribution of private developers. Fighting to Meet the Housing Demand There is a well-documented housing shortage in this country of between 3.8M and 6.8M homes, depending on how you calculate it. But whichever formula you use, there is a huge gulf between demand and supply, pushing up house prices and locking many would-be homeowners out of the market. Our ‘Here Comes the Neighborhood’ report explores the many reasons for this situation. I am less concerned with how we got here than I am with what can be done about it. And this is where I once again see a vital role for private real estate developers. Much of the home-building in the US is undertaken by a small number of publicly traded companies. In 2022 the Top 10 builders accounted for 43.2% of new single-family home closings. But that still means around half of all single-family home closings are undertaken by people like our investors. Private real estate developers rehabbed around 400,000 residential properties last year, not counting new-builds. That’s huge. But here’s the thing: They would like to build even more. Our original research shows that what is holding back private real estate developers is not availability of suitable properties or land, but other factors like access to labor and materials and, crucially, access to funding. That is one area we can do something about, by making the case for more accredited investors to see the value of real estate investment and connecting them with active investors through the Upright platform. When we talk about ‘value’ in real estate, we are usually referring to monetary value. We are, after all, primarily concerned with maximizing returns for our investors. But our research prompts me to think about value more broadly: About the value of putting more roofs over