RubinBrown Apartment Stats 2021

EXECUTIVE SUMMARY

Executive Summary The multifamily market was negatively impacted throughout much of 2020 as a result of the economic shutdowns. The shutdowns beginning in March 2020 left millions of renter households out of work, but the market has experienced a significant turnaround during 2021 leading to improved rental growth and lowered occupancy levels. Per FreddieMac’s 2021 Midyear Outlook , the multifamily rental housing demand is affected by a combination of demographics, ongoing job growth, a nationwide shortage of housing, federal stimulus payments, and more local economies reopening and loosening pandemic restrictions. According to the Joint Center for Housing Studies of Harvard University, after the pandemic, rental demand fell from annualized growth in the number of occupied apartments from 333,000 units in the first quarter of 2020 to 176,000 units in the second quarter of 2020. The decrease in demand was felt especially hard in large markets. Despite the slowdown, construction levels maintained their quick pace and closely tracked rental demand throughout 2020 and finished the year at its highest annual total since 1989. As a result of the pandemic, rental demand has varied greatly based on the market. Vacancy rates significantly increased in prime urban markets, especially for high end units. The vacancy rates for professionally managed units in these markets ranged from 7.2% to 10.0% over the course of 2020 per the Joint Center for Housing Studies of Harvard University. Meanwhile, vacancy rates in suburban areas declined from 7.2% to 6.0%. Additionally, rental demand varied by quality segment as well with higher quality units leading vacancy rates as high as 10.5%. Despite this, the FreddieMac’s 2021 Midyear Outlook expects multifamily vacancy rates to stabilize due to an increase in multifamily rental demand and range between 5.25% and 5.75% by the end of 2021. FreddieMac notes that rent growth is expected for all classes and for concessions to decline. As of June 2021, 10.7% of all multifamily units offered concessions, which was down from 15.8% in June 2020.

Per the Joint Center for Housing Studies of Harvard University, despite the rising vacancy rates and slowing rent growth, rental rates remained strong, raising year over year by 7.1%. This increase was less than the 10.2% year over year increase noted in the previous year though. Rising vacancy rates, declining incomes, and increased operating costs pushed rental property returns into negative territory in 2020 according to the Joint Center for Housing Studies of Harvard University. The National Council of Real Estate Investment Fiduciaries reported that annualized declines in net operating incomes increased from 1.5% in the second quarter of 2020 to 10.2% in the third quarter and 17.2% in the fourth quarter of 2020. By the first quarter of 2021, net operating income was down nearly 14% from a year earlier. The increases in operating expenses related to the pandemic were partially to blame. According to a September 2020 survey by the National Apartment Association, a fifth of property owners said their expenses had increased at least 50% due to the pandemic, and another fifth said that expenses were up at least 25%. Despite the weakening returns, multifamily delinquencies barely increased. The Mortgage Bankers Association found that only 0.7% of the balance of multifamily loans were 60 or more days past due. Many households that fell behind on their housing payments in 2020 were already cost burdened. Per the Joint Center for Housing Studies of Harvard University, nearly half of all renter households spent more than 30% of their incomes on housing in 2019. Of these 37.1 million households, 17.6 million spent more than 50% of their incomes on housing. Policymakers enacted several measures to help relieve some of the financial burdens of struggling households. The CARES Act enacted in March 2020 provided direct payments to many individuals and expanded unemployment benefits. The Consolidated Appropriations Act in December 2020 provided an additional $25 billion in rental assistance, $600 direct stimulus payments, extension of unemployment benefits, and the extension of the CDC eviction moratorium.

Executive Summary

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