Ariel Property Advisors President and Founder Shimon Shkury discusses Elon Musk's plan to create a community for his employees on Texas land called Snailbrook, and breaks down how remote work is impacting commercial real estate prices.

INTERVIEWER: Well, in a postpandemic world, office occupancy hovers just under 50%. That's according to a report out from Castle. Now, many workers still are opting for hybrid or full-time work from home. But what if work was your home or extremely close to it?

Enter Elon Musk. The Tesla CEO has purchased land near Tesla facilities outside Austin, Texas, where he reportedly plans to build a community for employees dubbed Snailbrook. That's according to a “Wall Street Journal“ report. Now, Snailbrook isn't Musk's first foray into a corporate community. In 2021, Musk encouraged employees to move near SpaceX's Starship facility in Texas.

The concept of a company town is not new and was popular practice in the turn of the century for mining and railroad companies. But in an age where less folks are traveling to the office, could companies like Tesla incentivize workers with affordable and nearby housing?

Shimon Shkury, founder and president of Ariel Property Advisors, joins us now with a deeper dive into what this could mean for the future of work. Great to have you on the show here. So this is a curious proposition here, something-- I know we've seen it with companies like Foxconn building these communities, having people closer. How do you see this working, though, in this day and age?

SHIMON SHKURY: First of all, thanks for having me. I think that we always have to look at the bigger picture of why this is happening. And one of the things that we learned about is statistically by 2035, the United States will be short 4.3 million housing units based on the National Multifamily Council. And I think that's a really important statistic to understand. We are in a housing crisis.

The second statistic is from my hometown, which is New York City. The Real Estate Board of New York is telling us that we'll be missing 560,000 units in 2030. And when it comes to that, there are two elements that policymakers, public officials can help with. One is they focus on regulation, which is important for low-income housing. But they focus less, unfortunately, in many cases on the incentives to build more housing, which is the supply side of the equation, which is very important.

So you're mentioning the Elon Musk situation, where he said that he left California because of overtaxation and over-regulation. And that's part of what's happening. I think he's looking for solutions that are beyond what the public officials have been presenting. And I can give you some examples or some successful examples of what has happened in New York City over the past few years that was successful and what's happening now that's a little less successful.

INTERVIEWER: Yeah, let's get to some of those examples

SHIMON SHKURY: Would you like me to do that?

INTERVIEWER: Yeah, so that way, we can get to the reality of what's been working and what hasn't been working so far.

SHIMON SHKURY: Perfect. So between 2010 and 2020, New York City added 117,000 residential rental units. That's 68% of the total construction that took place in the residential world. And most of it was because there was a 421a, or Affordable New York Tax Abatement. So residential developers had the incentive to develop residential rentals with a component of affordability.

However, that program stopped in June of 2022. And you see that the first quarter of this year has only 9,000 plus scheduled permits. And that's about half of what it was the quarter before. And I'll tell you that that's going to decline because of these misalignment in incentives.

And incentives, by the way, are sometimes something that the cities can do that doesn't cost them much. The first incentive is zoning. When you provide the zoning to or allow more density, you will, essentially, allow the building to be built or build a bigger building to be built within the same location.

The second thing is the tax incentive that I just described, the property tax incentive. You have a vacant lot today. It doesn't produce tax revenue. If you build a building, if you incentivize the developer to build a residential rental building, it's adding housing, and it's adding jobs. And in the future, while that tax abatement phases out, you can benefit from taxes as well.

INTERVIEWER: But, Shimon, what about tying your fate, essentially, not just now your job if you take on a job here, but also the literally the roof over your head? If you get laid off and you've already tied your fate and your housing to a company, I mean, surely that's not something a lot of people are comfortable with.

SHIMON SHKURY: Yeah, it's a great question. And it's a social question that we have to ask ourselves. And if you live in a community that provides you with housing and with your job, and you have to move away, that could be an issue. But it's not really different than living in any city, right, and being laid off and having to pay the rent in a way.

So all of these items, all of these items need to be taken into consideration. And that's when regulation comes to place. In case of low-income housing or low-income needs, we definitely as a society have to take care of that. But the supply side of the equation is the one item that we all have to focus on moving forward to mitigate that housing crisis. And that's part of what I think that our elected officials should think about. It does need political courage.

I want to say one more thing about our elected officials because I've got to give credit to the mayor of New York City and to the governor. They have been discussing the supply of housing and the incentives of supply of housing here in New York City in the biggest possible way. I really hope it trickles down to the rest of the elected officials. We have great leadership. Let's make sure that we build more housing here.

INTERVIEWER: So for some perhaps private companies who want to take things into their own hands when it comes to affordability, I mean, even MrBeast, a.k.a. Jimmy Donaldson, known for his philanthropy, bought a neighborhood in Greenville, North Carolina, where he grew up, for his family and for some of his employees to be able to commute closer to work. Some backlash. A lot of people were a little bit uncomfortable with that. But what do you think about the role of some of these private corporate communities being involved as they do wait for more affordability from lawmakers and for, really, for prices to come down?

SHIMON SHKURY: Yeah, I can give you examples from the commercial world, actually, here in New York City. One of the things we've seen in office that Google is building their own campus, for example, here in New York City. So private companies are doing that. JPMorgan is building their own offices here. So private companies are investing in real estate for the benefit of their employees on a commercial level.

When it comes to the residential level, I think that larger companies are sometimes thinking or trying to help communities. We've seen that with Amazon. We've seen that with Google. They're not acting directly, investing in their employees' housing. They are investing in their communities.

And I think that makes a lot more sense because, again, you're living in a certain community. You're working in a certain community. And as corporations, corporate America, you are investing in affordable housing in specific communities, which I think makes a lot of sense and the right social elements to it as well, if that makes sense.

INTERVIEWER: No, that makes sense. I prefer that approach to living in Snailbrook and wondering if I call in sick, will someone come knocking on my window, like we have the bus coming for you to come and get you to work? A big thank you to Shimon Shkury, founder and president of Ariel Property Advisors. Thank you so much.

SHIMON SHKURY: Thank you.