Inflation, Unrest, and the Role of the Property Manager: Two Views, One Industry
An anarcho-capitalist and a welfare-capitalist walk into Broker/Owner... and what follows is a deep dive into inflation, housing, and what lies ahead for PMs in two very different Americas.
With Broker/Owner week over, time to return to the normal long-form commentary that we’re known for around here. And the final presentation at Broker/Owner, delivered by Rob Hahn, gave me a lot to talk about. Fair warning, lots of economics nerdery in this article, which some of you will consider synonymous with “politics,” so I have no advertiser on this edition and you’re welcome to skip if you don’t like talk of politics and economics (although I attempt to keep this as a middle-of-the-road, facts-only conversation and not a partisan diatribe).
I was lucky enough to have dinner with Rob the night before his presentation (thanks to Scott Brady for putting that together), so we had time to get a little more in-depth in some of his thoughts on where he sees the industry and the country overall going. It’s no secret that my political and economic leanings are quite a bit different than Rob’s. He describes himself as an anarcho-capitalist, while I’m more of a welfare-capitalist. For those less into political philosophy than nerds like us, these can basically be summarized (by ChatGPT) as follows:
Anarcho-capitalism: a political and economic philosophy that advocates for the complete elimination of the state in favor of a fully privatized, free-market society. In this system, all services typically provided by the government—such as law enforcement, courts, infrastructure, and defense—would be handled by private entities operating in a competitive marketplace. Anarcho-capitalists believe that voluntary transactions and strong property rights should be the foundation of all social and economic interactions, and view taxation and state intervention as forms of coercion. The philosophy blends the anti-government stance of anarchism with the economic principles of laissez-faire capitalism, aiming to maximize individual liberty and minimize centralized power.
Welfare-capitalism: an economic system that combines the principles of a free-market economy with government intervention aimed at promoting social welfare and reducing inequality. While businesses and markets operate privately and competitively, the government plays a key role in providing public services such as healthcare, education, unemployment benefits, and retirement security. This model seeks to balance the efficiency and innovation of capitalism with the protections and safety nets of a welfare state, ensuring that economic growth benefits society as a whole. Welfare capitalism is widely practiced in many democratic nations and is rooted in the belief that markets function best when paired with policies that support stability, opportunity, and social well-being.
Now, this isn’t a political philosophy Substack, so I don’t want to get too deep into the weeds on this, but I thought it was relevant to point out these philosophies and their differences, as I think they shed some light on the inherent biases that both Rob and I bring to this discussion. When you’re leaning towards the anarchy side of the spectrum, you’re going to see a revolution around every corner, while if you’re leaning towards a welfare state, you tend to see a government solution to a lot of problems. As the saying goes, “if you’re a hammer, everything looks like a nail.” So neither of us is unbiased in our predictions or interpretations, no matter how hard we may try to be. We’re still starting with certain assumptions. That said, let’s get into the meat of the different ways we see things playing out for the economy and our industry over the next 1-2 years.
The Hahn View
I’ll keep this part short and sweet, as I don’t want to accidentally mischaracterize Rob’s views or be too redundant for people who already saw his presentation at Broker/Owner. Rob’s basic thesis is that we are on the precipice of significant social unrest caused by widespread disenchantment and decreased wealth opportunities among the working class (particularly working class men). And that’s putting it mildly. I don’t think Rob would object to me characterizing his view as one that predicts literal widespread violent riots in the streets unless something significant changes in relatively short order in terms of affordability for the working class.
In terms of actual numbers, Rob thinks we will see something along the lines of a doubling in housing prices and rents over the next couple of years. And since landlords are frequently already viewed as the enemy of a large swath of the population, he sees this leading to widespread hatred (and potentially even violence against) the land-owning classes. When the average auto mechanic sees his rent jump from $2,000/mo to $4,000/mo in the span of two years, this will lead to an entirely new level of dissatisfaction with both government and the upper classes. Hence, violent protests in the streets potentially targeting landlords.
As such, Rob views the role of the property manager to basically become the role of a “diplomat” or an “ambassador” for the landlords. We need to do what we can to make landlords look as good as possible, while meanwhile fighting back against any sort of anti-landlord legislation that springs out of this social unrest directed at landowners. You’re no longer going to be a rent collector or even an asset manager. Instead, your job will be to shield the landlord from the hate and do your best to keep things relatively safe for landlords to make a buck renting out housing.
The Ortscheid View
My view is quite a bit different, although we start off agreeing on some basic assumptions. First, I do certainly agree that landlords are already not popular people. But that’s not anything new. Landlord hate is as old as property ownership is. That said, I do agree that we’re poised to see it grow worse in the coming years. We also agree that social unrest is likely over the next couple of years, although I would argue that it will come about as a result of different political issues rather than inflation (no need to get into that as those issues are unrelated to our industry). So the environment that we envision is not all that different. We both see mass dissatisfaction among most people, we both see widespread unrest and protest, and we both see significant changes coming. But that’s where the agreement basically ends.
My thesis is that while inflation is likely to spike, it isn’t likely to cause housing prices or rents to double. To the contrary, I expect shelter pricing stagnation over the next few years. I do believe we’ll see significant inflation as a result of tariffs and other poor economic policies in certain industries, but housing inflation is a little different. This all comes down to what actually causes inflation, and there can be multiple causes. The traditional (and generally correct) understanding amongst most people is that inflation is caused by an increase in the money supply. More money is out there, so more money gets spent, which means demand is higher, and when demand is higher, prices go up to compensate. For those of us who majored in economics, this is basic stuff. But that’s not the only cause of inflation. Inflation can also be triggered artificially by other factors, such as tariffs. When auto manufacturers see 25% tariffs placed on their cars being imported, they’re going to pass on that cost to consumers, causing a rapid increase in prices. Of course, this doesn’t just impact the cars being imported. When the price of an imported Mercedes goes up 25%, Cadillac (who manufactures a lot of their cars domestically with UAW workers) sees that price increase, and they bump up their own prices also, despite the fact that they aren’t having to pay the tariff. This is partially opportunism, but it’s also partially a necessity, because there’s a brand cache issue if you are trying to compete in the luxury segment and your prices are substantially lower than the competition. In other words, it makes your cars look less luxurious if they’re priced so much lower, and since this market segment cares about luxury, that’s a problem. The price has to be raised in order to maintain the image of luxury parity. This is just one of the fundamental problems with economic policy centered on trade wars. The theory of the proponents is that tariffs on imports will make domestic products more desirable due to lower prices, but the domestic producers will increase their prices anyway defeating that entire purpose.
So, yes, we’re going to see inflation. But it’s not going to be universal inflation across all products and services, because the cause of the inflation is not a rapidly increasing money supply. We already lived through that phase of inflation. It happened after Covid when we flooded the market with stimulus checks and round four of quantitative easing (QE4) by the Federal Reserve. From 2020-2022, we saw significant inflation as a result of these policies. We can debate whether the policies were worth it (and the pro side probably has a slight advantage since the American economy rebounded faster and better than any other country on Earth following Covid), but we can’t really debate that this did cause an inflationary period, peaking at 9.1% in June of 2022, which was a 40-year high. This was your traditional, easily understood, textbook inflation caused by a glut of money out in the economy.
But we don’t have that problem now. In fact, we have the opposite. Rather than quantitative easing by the Fed, we now have radically higher interest rates, which are designed to limit the flow of money through the economy and tamp down inflationary pressures. This is how Paul Volcker, Chairman of the Fed from ‘79-’87, reigned in the massive inflation of the 1970s. The Fed jacked up interest rates to a peak of 20%, which triggered a pretty significant recession during President Reagan’s first term, but it did the job it was designed to do and solved the inflation problem by Reagan’s second term, leading to a massive economic expansion that basically continued until the new millennium. Jerome Powell, the current chair of the Fed, is not nearly taking as big of a sledgehammer to the economy that Volcker did, but he’s following generally the same playbook. Inflation spiked after Covid-era monetary policies, so he jacked up interest rates to 4.5% from 1.5% pre-Covid. And all indications are that the Fed intends to keep the rate at this much higher level for the foreseeable future to ensure that inflation stays in check (or at least the portion of inflation that is not being caused by tariffs).
So, how does this all tie into housing prices and rents? Well, let’s ask ourselves why housing prices increase. Like everything else, this is a matter of supply and demand. There are currently somewhere around 4 million fewer housing units than are needed based on recent historical standards of the number of housing units necessary for the current population. That would lead you to believe that we will see significant upwards pricing pressures on housing stock, bolstering Rob’s argument that prices could double.
But here’s the problem with that: people can only spend the money that they have. Yes, the price of a Cadillac is likely to go up along with the price of a Mercedes as tariffs kick in, but that’s only because people who can afford Cadillacs and Mercedes are not going to feel stretched. The wealth and income disparity in America is extreme, now reaching essentially the same levels of pre-revolutionary France, so people who buy luxury cars (and luxury homes) have plenty of money to spend on them. If a luxury car goes from $100k to $125k because of tariffs, you may hear some people bitch and whine about it, but the sales will mostly keep on trucking along because the people who can afford such cars can still afford them.
But things look very different when you look below that luxury level. In the 70s, inflation was spurred along by increasing wages. Among economics nerds like myself, this is termed a “wage-price spiral.” It goes like this: the money supply increases, so people spend more money, which causes prices to increase, which causes people to demand more money from their employers so that they can afford to maintain their standard of living, so employers agree and then raise the prices of their products and services to compensate for the higher wages they’re having to pay, which leads to ever more inflation, and the cycle just keeps continuing as prices spiral out of control (until someone like Volcker steps in and rips off the bandaid). The thing is, we don’t have a massive money supply today like we did in the 70s. The Fed pre-Volcker basically sat on their asses throughout the 1970s while they watched inflation run rampant. In 1975, inflation was already at an eye-watering 9.1%, but the Fed was stubbornly keeping interest rates at only 5%. This isn’t what we see today. The Fed under Jerome Powell has been pretty aggressive at mere hints of inflation. Right now inflation is only at 2.8% (basically at the target rate to maintain economic stability), but the Fed is still keeping interest rates at the highest level we’ve seen in years. The mentality seems to be that until they start to see inflation drop to the point where they’re more worried about deflation, then they’re going to keep the pressure on.
And this is a good strategy. It’s a strategy that’s working, even in the face of massive trade war fears. We don’t have money supply problems like we did in the 70s with a loose Fed policy and newly introduced credit sources for the average person (credit cards and installment loans for average people were a new thing in the 70s). There isn’t a massive amount of new money sloshing around the economy to drive up prices on everything for all income classes. And without that money sloshing around and getting into the hands of the majority of the population, housing prices simply can’t increase. People may need housing, but if they can’t afford it, they’ll simply find other solutions rather than renting or buying, such as living in mom’s basement or getting a roommate.
Now, Rob would argue that this lack of money oversupply right now doesn’t matter and is really beside the point, because he sees inflation as a policy decision rather than an outcome of normal economic pressures. He sees the massive national debt at $36 trillion (about to be $39 trillion thanks to the new continuing resolution) and he thinks that we’ll solve this national debt problem by deciding that we’ll inflate our way out of it. In other words, devalue our currency through intentional inflation so that $39 trillion doesn’t feel like $39 trillion anymore. If the value of the dollar is cut in half, then debt that was incurred before that is essentially only half as expensive as it originally was to pay down. We can basically solve the national debt problem by destroying our own currency.
I just don’t see this happening. Sure, inflation is one of the reasons that I don’t worry about the national debt as much as many people do. Economists in general are more sanguine about the national debt than politicians and average people are, because they know that inflation of our currency is always an escape route. There is essentially no scenario in which we actually collapse as a country as a result of our national debt. Since we control the world’s reserve currency, we can always implement policies to devalue that currency and make our debt problem much less of a problem.
That said, that’s not a good solution to the problem, and economists generally don’t advocate for it. Inflation is more of a side-effect of good economic policies that can solve the debt problem. Now, I get it, the Trump administration is not exactly known for listening to highly-educated and highly-respected economists, so they may not listen to the experts and may want to engage in inflationary policies to solve the problem despite economists screaming that it’s a bad idea. But, there’s just one problem with that theory: Jerome Powell’s term as Chairman of the Fed doesn’t expire until almost halfway through Trump’s term, next year, and he has the option to stay on the Board of Governors after that almost through the entire Trump term. With the Fed having the most power to exert control over inflationary forces, it is unlikely that we will see policies shift in the next few years towards intentional inflationary measures, even if that’s what the Trump administration’s desires would be.
So, with that all in mind, what do I think we’re likely to see instead over the next few years?
The Fed will continue to be inflation hawks, and may in fact ramp up their anti-inflationary monetary policy as tariffs take hold of some industries; this means interest rates will stay high for the foreseeable future
Not able to exert influence on the Fed to increase inflation and solve the deficit and national debt problems using monetary policy, the Administration will turn instead to economic and budgetary policy, things they have much more control over; this means DOGE is likely to continue its efforts to cut spending (inadvisable and ineffectual as they may have been so far) and Congress is likely to do everything it can to spur GDP growth in hopes of using that growth to outpace national debt growth; that means the tariffs are likely going to go away, and Trump will find a way to declare victory and make it look like it was his idea
Whoever follows Trump is likely to raise taxes on the top 20% or so of income earners; hell, Trump might even do it himself; taxes on the wealthy will anger Trump’s new tech bro billionaire friends, but Trump is ultimately a populist, not a country club conservative, so raising taxes on the wealthy fits into a populist mindset, particularly if he can spin it well as a way to tackle the national debt; but whoever does it, it has to be done, and it will be done; count on it
The social security trust fund will be shored up again by either raising the retirement age (unlikely) or increasing the cap on payroll taxes
Housing prices overall will stagnate; yes, demand is high due to there being a shortage of housing units, but people are correcting for that by moving back in with family, finding roommates, and new industries are even popping up like PadSplit, allowing homes to be rented out by the room very efficiently and solving affordability problems for many people without any new housing being necessary; luxury houses will continue a pricing climb, but most people will not see significant price increases for the coming years
That’s it. That’s what I see happening, and that’s what the average economist sees happening. I know, it’s pretty boring. The doom-and-gloom predictions of massive inflation, riots in the streets, social security payouts being cut, etc. are not shared by the people who actually specialize in this field, and I tend to believe that they have a much better feel for this stuff. No disrespect intended for Rob, I’m glad that we have people who think differently and point out potential alternative paths that things could go down, because that helps us to avoid those more perilous paths, but I just don’t see the elements in place that would actually lead us down one of those paths, despite Trump being a bit of a loose cannon compared to traditional politicians. Ultimately, societies tend to correct for these problems in the modern world before they get to the point of mass unrest. We just aren’t responsible enough to avoid them well ahead of time; instead, we wait until they’re almost at a head, and then we take action. Reference how every few months we have a government shutdown threat over the budget, or a default threat over the debt ceiling. It gets right up to the wire, and then cooler heads prevail and a solution is found. As Winston Churchill once said “You can always count on Americans to do the right thing - after they've tried everything else.” So we’ll fight tooth and nail, we’ll let it get right up to the brink of disaster…and then we’ll do the right/wise thing and make sure it doesn’t happen.
What Does this Mean for Property Managers?
In Rob’s scenario, property managers need to become diplomats and shields for landlords. So what do property managers become in my more benign scenario of the next few years?
Essentially, I don’t see major changes. Instead, I see more changes around the margins:
Landlords will continue to see PMs largely as a service-based business that makes their lives easier, and maybe even makes them a little extra return on their investment
PMs will start to take on a little bit more of an asset manager role, something that I’ve advocated for along with others like Blanket
Pockets of the country where housing affordability is at crisis levels (essentially certain parts of the coasts) will see increased regulations such as rent control, limits on ancillary fees, and more oversight from regulators; this means that these pockets will need to increase management fees over the coming years
The rest of the country will essentially see status quo in terms of regulations; an average entry-level house purchased for $80k in Akron, OH 25 years ago is still only worth about $95k today; meanwhile, wages in that same area have increased by more than 50%; this isn’t a housing affordability crisis; people who live on the coasts (no offense, but like Rob) have a distorted view of housing economics because of this; in Vegas, housing prices have climbed 251% during that time period while wages have only gone up 46%; it’s easy to see why Rob thinks there is a crisis brewing where he lives, but the rest of us in middle America just aren’t seeing the same; if you think deep red state Ohio is going to implement left-wing economic policies like rent control when they aren’t experiencing a housing crisis, then you’re taking much stronger edibles than I am
PMs in middle America are likely to see much better business growth than their counterparts on the coasts; regulation stifles growth and profits, and when there are other markets not that far away that don’t have the same regulatory burdens, you can bet that they’ll reap some benefits of that lower regulatory burden
Labor costs will start to go down as machine learning (AI) becomes more embedded into the PM industry, allowing PMs to reduce fees while maintaining the same levels of profitability
In short, my advice is to not panic (unless you’re in California, Washington, Oregon, Colorado, New York, Nevada, or a handful of the more left-leaning New England states). Those pockets will see massive regulatory burdens as housing affordability reaches crisis levels, but the rest of the country will basically keep on keeping on. So if you’re in one of those markets, my advice is to prepare. I don’t think prices are going to double (partly because regulators will implement price controls), so I don’t foresee riots in the streets, but I do see a very difficult environment in which to own rental property or manage it. If you’re like me and still relatively young (I’m in my early 40s), then consider opening an office in what you call a “flyover state” so that all of your eggs aren’t in the one basket that is being robbed by regulations. If you’re approaching retirement and not interested in all of that, then consider selling the business. I just don’t think there is much to be gained from having a PM business in Portland, OR or Silicon Valley going forward. The environment there is just too toxic for landlords and PMs. But the future is bright in middle America! Sure, you won’t be driving by palm trees and the ocean while driving to your office in Rapid City, SD, but you won’t have an auditor fining you for collecting pet fees or accidentally raising the rent 1% higher than the rent control regulations allow, either. You can be rich and happy in Alabama, taking frequent vacations to see the beach instead, or you can be constantly fighting with the DRE in Orange County and watching your margins shrink. Your choice. Just don’t say I didn’t warn you.
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