It moved up a lot of people into the world that wouldn’t otherwise have been able to afford an apartment and they all moved out to apartments. If you look at 2022, we had a net absorption of 50,000 units, right? So you had — we had really anemic absorption. A couple of other numbers that I think are really fascinating would be, in the fourth quarter of 2008, which was a really bad time in the world, we had a negative, this is national negative absorption in multifamily of 115,000 units. In the fourth quarter of 2022, which obviously, is a lot better than the fourth quarter of 2008, we had 181,000 net loss of apartment. So 115 to 181. The 181 was so big relative to the history. I couldn’t find a time, at least Keith and I have been in this business where the number was that big.
And what happened, obviously, is that those people that moved up income wise have spent their money and move back and they stayed home up for Christmas instead of coming back and renewing their leases and that’s why when you start thinking about next year. I think next year, it’s going to be a good year ex some real bad recession side of the equation. But that’s why you can’t continue to have 14%, 15% NOI growth with double-digit revenue growth when the market is going back to a more normal market. We are just getting off the sugar high of everybody has money and can go out and do whatever they want including lease apartments.
Michael Goldsmith: That’s a very helpful commentary. And then in your guidance, there’s a wide range for development starts. So maybe what macro conditions would you look for that would drive you to the top end of the range versus maybe the bottom end of the range? Thanks.
Ric Campo: There are a couple of key points. One is that, if you look at what’s going on, the biggest sort of change in the market from a product perspective has been banks have really shut down construction lending. And with the uncertainty with interest rates, rents now are not going up fast enough to be able to offset the construction cost increases that we have had in the past. So you have a lot of models that show merchant builders dropping construction somewhere in the 40% to 50% range. If you look at starts today, they are around 0.5 million and so the folks we look at show that those starts going to like 250,000 by the end of this year, almost a 50% cut. So if that trend continues, then the way we think about the world is it takes 24 months to 36 months to build a property, you have great legacy land that makes sense for us to build on and we could deliver at a time where you have very low supply in 2026 and 2027 given the outlook for the supply to be reduced.
The other thing we are starting to see is because most folks are do believe that that starts will come down dramatically this year, then you are starting to see price pressure moderate. We — last year, there was probably — in the last three years, construction costs have gone up over 30% to almost 40% in terms of cost. Now we are seeing it flat and then actually go down. So there could be an opportunity over the next six months where you do see some significant cost reductions and if we can get our costs down, and we believe fundamentally that supply is going to be down and the market will be pretty good in 2025 and 2026, then we are going to lean into that and that’s where we would be hitting the top end of our development range. If sort of the interesting part is if you think about, if you have a recession, then those starts will really go down this year and costs should come down even more.
