RubinBrown Apartment Stats 2019

EXECUTIVE SUMMARY

Multi-Family Industry Since 2010, the U.S. multi-family industry has

The Fannie Mae 2019 Multi-family Market Outlook expects vacancy rates to return to historical levels and remain stable, due to the ongoing favorable job growth and demographic projects. The Fannie Mae research team anticipates the U.S. multi-family vacancy rate will remain in the 5.5% to 6.0% range during 2019. At this rate, the national vacancy rate would return to its recent historical average of 6.0%. rent-restricted properties were at 2.3% in 2018. These properties include units that benefit from Low Income Housing Tax Credits (LIHTC) and Project-Based Section 8 programs. Vacancy rates at these properties are unlikely to rise in the near future. According to Reis, vacancies at rent restricted apartments should remain below 2.1% through 2020. Meanwhile, affordable rental units continue to experience low vacancy rates. Vacancies at Rent growth was positive and ended 2018 at approximately 2.75%, which outpaced the rate of inflation of 2.4%, according to Fannie Mae. Additionally, 2018 rent growth was greater than the 2.5% growth rate of 2017. The expectation for 2019 is positive but may be slightly lower at 2.3%. Rent growth for affordable units increased by approximately 2.9% for 2018. CoStar projects rent growth in 2019 for affordable housing will Under the Tax Cut and Jobs Act of 2017 (TCJA), the corporate tax rate declined from 35% to 21% leading to a decline in the value of tax credits. Investors in low-income housing tax credit deals receive tax benefits from the low-income housing tax credits, but also receive tax benefits from the taxable losses allocated to them. For example, with the drop in corporate tax rate from 35% to 21%, the tax benefits derived from the losses have less value to investors, and decrease the yield to an investor. On the other hand, the increase in the bonus depreciation percentage from 50% to 100% has allowed some deals to deliver losses to investors earlier, increasing the yield to the investor. The TCJA also introduced Opportunity Zones and a spending bill providing a four year, 12.5% annual increase in the 9% LIHTC allocation. Opportunity Zones allow investors to defer gains for an investment in primarily disadvantaged neighborhoods. be approximately 2.4%. Affordable Housing

experienced increased rent growth and low vacancies. Key fundamentals such as favorable demographic trends, positive job growth and continued renter household formations have propelled the multi-family

industry over the past several years, per the Fannie Mae 2019 Multi-family Market Outlook.

According to the Dodge Data & Analytics Supply Track data, approximately 394,000 and 381,000 apartment units were completed in 2017 and 2018, respectively. Another 453,000 units are expected to be completed in 2019. Despite the growth in number of multi-family units, the nation’s supply of low-cost rental housing significantly shrank after the Great Recession and has remained, for the most part, unchanged since 2015. A National Low Income Housing Coalition study found that for every 100 extremely low-income renters, only 35 rental units were affordable and available in 2016, which is a shortfall of more than 7.2 million units. Based on research from the Joint Center for Housing Studies of Harvard University, more than 2.5 million units priced below $800 were lost between 1990 and 2016. Additionally, job growth is expected to be at 1.0% in 2019, which would produce 1.5 million new jobs according to Fannie Mae’s forecast. According to the Fannie Mae 2019 Multi-family Market Outlook, based on that job growth, multi-family rental demand theoretically could increase in the range of between 250,000 units to as high as 370,000 units. Further straining the nation’s supply of low-cost rental housing. According to the Joint Center for Housing Studies of Harvard University, all three major Census Bureau surveys show that household growth has increased over the past three years, with ranges from 800,000 to 1.1 million annually which is greater than post-recession lows but less than the 1.35 million annual average from 2000 to 2006. The millennial generation is driving much of the rebound in household growth, forming an average of 2.1 million net new households annually between 2012 and 2017. Immigration is expected to become an even greater source of population growth. According to the Joint Center for Housing Studies of Harvard University, immigrants make up 20% of renter households. The Census Bureau projects an increase in growth of immigration from 42% in 2018 to 67% in 2040.

Executive Summary

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