Ethically-Sourced Housing

Last week, the Guardian covered the “re-branding” of the Bay Area’s Buckingham Apartments and the resulting evictions. It’s a painful article that paints the human cost of one real estate developer’s work.

In this case, the developer’s activity — and the building’s history — is being brought to light. The bad press may give the building’s prospective new (higher-rent) tenants pause before they sign their leases. Do they want to financially support a developer’s unethical practices? But the Guardian can’t watch every building and police every developer. We need a better way of disseminating information about the origin of housing to prospective renters. Said another way:

I can buy ethically-sourced coffee. Why can’t I buy ethically-sourced housing?

The Buckingham Apartments in Redwood City. Photo courtesy Marcus and Millichap.

Ethical sourcing is a big deal. The food and beverage, fashion, and consumer packaged goods industries have all seen the expansion of ethical-sourcing standards and certifications, creating a market-based solution that brings transparency to supply chains and enables consumers to make their own informed decisions. Ethically-sourced products may be more expensive, but the consumer is given the peace of mind that workers were paid fairly, the environment was protected, and the product was sustainably produced. Typically, these certifications are managed by an independent, non-profit body.

Creating an independent certifying body for real estate certainly has precedent. The US Green Buildings’ Council LEED Program has certified over 80,000 projects since 1994. LEED works with real estate developers of all sizes and is one of the most sought-after accreditations among developers.

Of course, LEED only evaluates one aspect of ethical sourcing: a building’s environmental impact. But as urban housing markets heat up, evictions and the treatment of long-time tenants increasingly dominate the conversation. And perhaps I’m being overly optimistic, but I believe that new tenants would be willing to pay a premium to know that their housing didn’t come at the price of harassment or increased homelessness.

New York City already does something like this — certain types of buildings require the owner to obtain a Certificate of No Harassment from the city before beginning a development project. The Certificate requires a city investigation and verifies that tenants were not harassed in order to vacate the building for renovation. But this certificate is only applicable to a small subset of the city’s residential buildings and has zero consumer recognition.

Right now, developers only have downside: the very small chance they get called out by a journalist for harassing tenants. But a certification gives them upside: an opportunity to use a LEED-like standard to market themselves and their building.

Unethical real estate developers don’t harass tenants because they enjoy it. Some do it because they want outsized returns on their own money. Others do it because they answer to their investors, investors who often want a quick return-on-capital once a building is acquired. By pursuing this certification, developers would have a financial argument for pursuing more ethical practices or demanding more patience from their investors.

Today the residential investment market suffers from a massive lack of transparency. This lack of transparency is a problem for everyone — it hurts existing tenants, new tenants, good real estate developers, and management companies like Common who are trying to do things right. An independent certification wouldn’t solve all the problems, but it would be a step in the right direction.