Remembering (Shifting) Baselines

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For reasons due more to accident than planning, recently some articles on climate change and related issues crossed my (online) desk. One in particular was thought provoking, an article entitled “Covid-19 and Climate Change: Why we need to remember what we’ve lost” by David Roberts in Here’s a link:

The article makes the important point that humans, both individually and collectively, have a tendency to adapt to big changes or big pressures—such as climate change—by adapting to what are called “shifting baselines.” Basically, as time passes, the latest generation of humans begins observing and measuring changes from a baseline lower than the baseline from which the previous generation of humans began observing and measuring changes. This means that what the latest generation accepts as “normal” is already not normal.

This phenomenon happens because most big changes (like climate change, or species extinction) take place over periods just long enough to be multi-generational, so that no single generation of humans is able to observe or measure the entire change from beginning to end and therefore no single generation is able to remember the whole change. According to the article, this “phenomenon is sometimes called ‘generational amnesia,’ the tendency of each generation to disregard what has come before and benchmark its own experience of nature as normal.” The article cites a number of scientific studies which confirm this phenomenon.

How does this relate to rental housing? Obviously, rental housing isn’t going extinct, and changes that are happening in the rental housing space are not making it worse. For me, it’s the phenomenon of humans forgetting past baselines, even recent baselines, and adapting quickly to the ‘new normal.” When I started in this industry vacancies were high, rents were much lower, little new construction was happening, and nearly all exiting rental units were in original condition (i.e. not renovated). When some young analysts I know started in this industry two or three years ago, vacancies were nearly nonexistent, rents were much higher and rising steadily, thousands of new rental units were being built each year, and several major landlords were renovating their old-stock units at a pace of hundreds of units per year. For those young analysts, the rental housing ‘ecosystem’ when they started is their baseline, the point from which—and against which—they’ll measure the changes and shifts in the industry as their careers progress. By contrast, my starting point, my baseline is much different.

Does this matter? Unlike species extinction and climate change, which are both unidirectional changes, rental housing is bidirectional—vacancies could spike up in the future, rent growth could slow to a crawl, new rental housing construction could halt. From that perspective, I think being aware of “shifting baselines” is important for rental housing market participants, otherwise they may make assumptions about the future based on a too-recent starting point or baseline, and might be intellectually unprepared for the future if it doesn’t unfold the way it’s been unfolding.