Unidentified Analyst: Thanks for that. Follow-up question, maybe at a higher level for Mark. You talked about this in your prepared remarks, turnovers at historic lows is a real affordability benefit for the rental product versus homeownership. Just curious if you could share any high-level thoughts on how you see this dynamic evolving in the near to medium term? Could this in theory be a durable demand and profitability tailwinds over the next cycle?
Mark Parrell: Yes, I think two of the biggest structural advantages to the rental housing business and the apartment business are what you just identified, the fact that home ownership is just tough. And that’s for a lot of reasons. So, many people are locked in with the real low rates on mortgages. It makes it very attractive to stay in place even if they might move or downsize. So, that will slow things down in that market. I think the amount of production by the homebuilders is just a lot lower than it was pre-GFC. I think the cost of ownership, including things like insurance, are significantly higher. And I think all of that together makes rental housing a lot more attractive, and that’s likely to be a persistent benefit.
And embedded in that is just a lack of supply. So, even though Michael just talked about some of the impacts of supply in these expansion markets for us and for people that own in the Sunbelt, that’s certainly a pretty profound impact for the next couple of years. It still means that the U.S. as a whole is undersupplied in housing. And I think at 1.5 million units a year of owned and rental housing supplied, the same as the number was in 1960 for a population twice as big, you can see the opportunity there if you own like we do, 80,000 well-positioned nice units to rent in some of the higher growth parts of the country. So, I think those are huge secular tailwinds to our business and are likely to persist. And that’s why, again, we want to stick with our strategy of having balance, being in the 12 best markets, these expansion markets, for 20%, 25% of NOI, and the remainder in these established markets where our higher-end resident wants to be and take advantage of the supply imbalances, and frankly, the preference that we think is going to be pretty persistent for rental housing.
Unidentified Analyst: Thanks for the time.
Operator: And we’ll take a question from Linda Tsai with Jefferies.
Linda Tsai: Yes, hi. Where are renewals going out in May?
Michael Manelis: Yes hi. This is Michael. So, I’ll just give you a sense. So, renewals right now are out in the marketplace for the next 90 days, for the next three months. Very consistent right now, the quotes are running between 6.5% and 7%. And that gives us a lot of confidence that we expect to achieve somewhere right around that 5% on the net effective side.
Linda Tsai: Thanks. And then just on bad debt, there’s going to be a 30 basis, I guess, contribution. What’s the cadence of like that is as you move through the year?
Robert Garechana: Hey Linda, it’s Bob. We would expect to start seeing improvement in the second quarter because you saw Q4 to Q1 was relatively flat. But we’re seeing some of the lead indicators, as Michael mentioned, in terms of the timing of the courts and other things, indicate that we should start to see some sequential improvement in Q2. And then we would expect it to continue on that process, although it can be volatile in Q3 and Q4 such that, by the end of the year, Q4 is maybe ends at, call it, 90 basis points of total revenue. That means for the full year, you’re getting that 30 basis points of improvement.
Linda Tsai: Helpful. And then one last one. On the NYC housing laws, do you view that as more of a net benefit or a detractor for your apartments in that region?
Mark Parrell: Yes, I’m going to answer your question very precisely because I take it to mean impact on Equity Residential, and I’d say the impact on Equity Residential is pretty modest, pretty insignificant. That’s because about 40% of our units are either called luxury units under the law, meaning the rents are at higher levels, or that we own newer buildings, buildings built in 2009 or later. And for the other units, for us to get over an 8% or 10% renewal increase, which is what the law would limit, 2023 was a great year in New York, so just looking backwards, but it wasn’t that great. And it would be more impactful to us in a year like late 2021 or 2022 when we were trying to recover from the pandemic and rents were going up more quickly on renewal and we were taking away concessions.
That market is not that kind of market right now. So I would expect right now for it not to be terribly significant to us. And again, a great benefit, I think, in trying to encourage supply, which I noted in my remarks. I just think rent control in general does not encourage more supply into the market. So, we got to work through that in New York. But I do think having some certainty here for everyone involved is a plus.
Linda Tsai: Thank you.
Operator: And that does conclude the question-and-answer session. I’ll now turn the conference back over to Mark Parrell for closing comments.
Mark Parrell: Thank you all for your time and your interest in Equity Residential. Have a good day.
Operator: Thank you and that does conclude today’s conference.
