RubinBrown Apartment Stats 2018

EXECUTIVE SUMMARY

Multi-Family Industry The multi-family industry continued to experience above-average performance in 2017. There were 336,000 multi-family units completed in 2017, an increase over the 321,000 units completed in 2016. According to the Fannie Mae 2018 Multi-Family Affordable Housing Outlook , most new supply over the past few years has been focused in high rent segments. There has been little growth in stock of affordable multifamily housing. Strong demand for multi-family rentals has prompted developers to renovate more affordable housing to higher rent units. The impact of the two trends has been that while the number of Class A units have grown by an estimated 1.1 million to 5.0 million total units since the end of the recession, the number of Class B/C units remained virtually unchanged at an estimated 5.7 million units, according to the sample data tracked by Reis, Inc. This trend is unlikely to change in the next 12 to 24 months. According to the Joint Center for Housing Studies of Harvard University, the national vacancy rate for all rental units averaged 7.2% in 2017, an increase from 6.9% in 2016. Meanwhile, according to the Fannie Mae 2018 Multi-Family Affordable Housing Outlook , vacancies for rent-restricted affordable housing properties remains historically low. At the close of 2017, Reis, Inc. estimates a 1.9% vacancy rate for rent-restricted properties, which consist of multi-family rental properties assisted with federal Low Income Housing Tax Credits (LIHTC) and Section 8 project-based vouchers, reflecting the demand for all types of affordable multi-family rentals. A 2016 National Low Income Housing Coalition study found that for every 100 extremely low-income renters, only 35 rental units were affordable and available which is a nationwide shortfall of more than 7.2 million units. Conditions for very-low income renter households improved slightly with 56 affordable and available rentals per 100 households. According to the Joint Center for Housing Studies of Harvard University, the number of multi-family starts declined slightly over the past year and expanding supplies of new luxury apartments pushed up rental rates.

According to data from the National Council of Real Estate Investment Fiduciaries, net operating income for investment-grade multi-family properties in 2017 grew 3.4% from 2016. In addition, the annual rate of return on rental property investments was 6.4% for 2017. Rental property prices and sales remain strong. Real Capital Analytics (a commercial real estate database which tracks prices for rental properties and portfolios of at least $2.5 million), reports that nominal apartment property prices rose at a 12% annual rate averaged in 2014 – 2017. As a result, apartment prices now stand 30% above the mid-2000s peak in real terms. Tax Reform The Tax Cuts & Jobs Act (the Act) was signed into law at the end of 2017. According to the Joint Center for Housing Studies of Harvard University, the Act left LIHTC intact; however the decline in the corporate tax rate from 35% to 21% will likely have negative consequences for new rent-restricted supply. Tax credits are now less valuable and prices have declined since discussions on implementing a corporate tax cut began in 2017. Developers may struggle with new projects to fill the financing gap resulting from lower proceeds from investment in LIHTC due to this decline. Congress introduced the Affordable Housing Credit Improvement Act of 2017 to help offset the decline in LIHTC prices. Positive news from the Act came in the form of a new program that could provide funding for affordable housing. The Act allows investors to defer paying tax, up to nine years, on gains if those gains are invested in Qualified Opportunity Funds that in turn invest in economically distressed communities (known as opportunity zones) designated by the governor of each state. Market Trends Demand for housing is driven primarily by an increase in household growth, which is expected to remain strong based on aging millennials and the overall population. According to the Joint Center for Housing Studies of Harvard University, with a large portion of the millennial population now in its early 30s, adults under age 35 formed

Executive Summary

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