Why Affordable Housing is Facing a Perfect Storm

 

Housing costs are being driven up by low supply, increased demand, poor wage growth and a lack of proper financing tools.

By Kelsi Maree Borland| January 13, 2020  via Globest.com

The affordable housing crisis doesn’t seem to be getting better. At the moment, there is a perfect storm driving housing prices and rents up. The storm includes low supply, increased demand, poor wage growth and a lack of proper financing tools, all of which are helping to drive rents up.

“We’ve been seeing a huge influx of local and state resources for affordable housing in California, bringing a much larger pipeline of transactions,” Cecile Chalifour, west division manager for Community Development Banking at Chase, tells GlobeSt.com. “However, we’re facing an ongoing and perfect storm: low production of affordable housing over the last 10 years with low supply, increased demand leading to higher rent expectations from landlords and investors, and a growing disconnect between rent increases and income growth. As a result, the affordable housing crisis is growing. Although we have more resources today, high development costs for land and construction are making it harder to build financially viable affordable housing projects.”

It isn’t only a severe supply demand imbalance, but also a shortage of funding tools and solutions to bring more affordable housing product to the market. “The complexity of the tools to finance affordable housing can also present challenges,” says Chalifour. “Developers and financial partners spend a tremendous amount of time, capacity and financial resources to secure funds and structure transactions. Despite some challenges, this is an industry of creative players, so there has been a lot of innovation and improvements resulting from those challenges.”

While there are challenges, awareness and focus on the problem is growing, particularly in 2019. Last year, several industry professionals and political leaders stepped forward to offer solutions to the crisis. “In 2019, we have seen increased awareness and sensitivity to the affordable housing crisis from the general public. Over the last couple of years across California, we saw major support from voters and elected officials for legislative and regulatory reforms, as well as additional resources to support the production and preservation of affordable housing, in response to the heightened crisis,” says Chalifour. “That includes a host of initiatives around renters protection and zoning and environmental regulations to facilitate the development of affordable housing—such as innovation around accessory dwelling units, mixed income housing and the $2 billion in new funding at the state level. We’re also seeing new industry players looking to bring new resources and tools to the table.”

On the capital side, financing packages have focused on permanent supportive housing and workforce housing. “This has led to industry-wide constructive conversations on underwriting operating subsidies and market risk, capacity of new industry players and the gap in financial tools,” says Chalifour. “We also saw some innovative approaches to construction and finance, such as modular construction, public sale of bonds, 40-year amortization and early rate locks, among others.”

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Waterfront Apartments Coming to Tampa Bay Amid Supply Wave

written by PAUL OWERS via costar.com

Bainbridge Bayside to Open in August

The average rent at Bainbridge Bayside is near $1,900 a month. Illustration: Bainbridge Cos.

Preleasing has started for a waterfront apartment community on Florida’s west coast, located in a market with near-record-low vacancies despite a five-year surge in supply.

The Bainbridge Cos. said the first residents of the 360-unit Bainbridge Baysidein Clearwater, Florida, will move in by August. The average asking rent for the one-, two- and three-bedroom units is $1,890 a month, according to CoStar records.

The Central Pinellas County market appears near the end of a wave of new developments that increased supply by 15% since 2014, according to the latest report from CoStar Market Analytics.

“Perhaps most remarkable, this upward pressure only amounted to about a 50 basis point rise in the average vacancy rate from the all-time low in 2014,” the report stated.

Central Pinellas remains robust for investors, with annual rent growth above the historical average and ranking among the top half of Tampa Bay markets for annual rent gains, CoStar data shows.

Nationally, the multifamily market remains vibrant, with a still-strong U.S. economy leading to sustained rental demand, according to a new CoStar video.But Michael Cohen, vice president of CoStar Advisory Services, and John Affleck, vice president of CoStar Market Analytics, also point to potential trouble in Boston, Miami and other markets where development continues despite high levels of existing supply.

Amenities at Bainbridge Bayside include a white-sand beach overlooking Tampa Bay, a beachside hammock garden, stand-up paddleboards, a swimming pool and a boardwalk.

The community offers residents “a rare chance to embrace a luxurious, maintenance-free lifestyle right on the bay,” Bob Thollander, president of Florida development for Bainbridge, said in a statement.

 

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Graves Brothers Company Pays $62.2 Million for Florida Apartment Community

SEPTEMBER 04, 2019|NIGEL DAVIDSON via Costar.com

 

Epoch Residential Sells Lakeside Walk at Bexley

Eoch Residential sold the Lakeside Walk at Bexley apartments at 16947 Kettle Ln. in Land O Lakes, Florida, for $62.15 million, or approximately $207,000 per unit, to Graves Brothers Company.

The 300-unit, 303,191-square-foot, Class A multifamily community was built in 2018 on 18.5 acres in the Outer Pasco County submarket of Tampa. It offers a mix of one-, two- and three-bedroom homes across nine buildings, and features a business center, fitness center, gameroom, on-site management, walking and biking trails, tenant clubhouse, courtyard and cabana.

At the time of sale, the asset was 82% occupied.

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Facing Down Challenges in Multifamily Construction

 

“The most successful jobs are when the contractor, the developer and their consultants work together as a team.”

By Tanya Sterling | via Globest.com

Developers and contractors used to have something a combative relationship but that has changed, especially in the multifamily space, according to Mike Rovner, president and founder of Mike Rovner Construction, which works mostly on apartments. Collaboration, now, has become the hallmark of this relationship and to great effect, he says.

That is one example of a challenge that used to bedevil multifamily construction. These firms now “see the advantage of working together and obtaining multiple opportunities together,” he tells GlobeSt.com.

Apartment construction is booming, especially in the state of California, but that doesn’t mean the industry doesn’t have its challenges, such as onerous regulations and the problem of retaining subcontractors.

For example, bureaucracy and red-tape in the construction process can easily cause a job to be delayed, Rovner says. For example:

• Environmental Impact. The construction site owners need to demonstrate that the project will not have a negative impact on the environment.
• Transportation Research Protocols. There needs to be sound research into the possible impact of large-scale transportation projects.
• Federal Funding. The government needs an accurate estimation of costs, risks identified and mitigated along with clear funding strategies. Project participants roles, their responsibilities and processes also need to identified.
• Safety Requirements. There are strict rules regarding hours of service, safety of workers, and other guidelines. Some states, such as California, have even stricter guidelines. Specific conditions must be fulfilled before construction begins plus ongoing inspections and reporting is required throughout the project. Injuries that may occur can slow down or halt the project until the situation is corrected.

Another issue is keeping subcontractors on tap during a very busy cycle. “Construction-wise, the state of California is very busy and has been over the last few years,” Rovner says. “There are more jobs than contractors.” To that end, contractors are ensuring their teams of subcontractors are making profits and fast-tracking their payments, Rovner says.

 

 

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Multifamily Rent Growth Gets Serious

 

The average US multifamily rent increased by $12 to $1,465 in June, according to Yardi-Matrix.

By Erika Morphy| via Globest.com

June was an inflection point for US multifamily rent growth, according to new figures by Yardi-Matrix. Following several months this year of slow rent growth, rents rose robustly in the second quarter by $12 to reach $1,465, the company says. Average rents increased by 2% in the second quarter of 2019, and they are up 2.6% so far this year. Year-over-year growth increased to 3.3%, up by 40 basis points from May.

“Those are not the biggest percentage increases achieved in recent years, but both come close to the best performance seen in this extremely favorable economic cycle,” Yardi-Matrix writes in its report. And while growth tends to slow down in the second half of most years, the multifamily market’s extended run of strong performance does not appear to be winding down soon, Yardi-Matrix added.

 

Hot

Markets

Certain markets, such as Las Vegas (8.4% year-over-year growth) and Phoenix (8.1%) remain very active, but the strong gains were not limited to any particular region. Rents in every metro on Yardi Matrix’s Top 30 list increased by at least 1.3% on a trailing 12-month basis in the second quarter.

Las Vegas, Phoenix, and Sacramento (5.3%) lead the rankings, as strong migration and relatively modest new supply drive outsize rent growth. Not far behind, however, Austin (4.9%) and Nashville (4.1%) are both in the top 10 for rent growth, despite having some of the highest recent completions and among the most robust new development pipelines in the country. Job growth and lifestyle amenities continue to draw in migrants and keep demand for multifamily strong, Yardi-Matrix says.

Also, while the fast-growing South and West markets remained atop the rent growth rankings, there were two metros to fall below 2.5% growth over the last 12 months: Miami (2.2%) and Houston (0.8%).

Lifestyle versus RBN

Yardi-Matrix also noted that the gap between lifestyle rents (2.9%) and RBN, or affordable rents, (3.8%) continues to contract, as wages rise and affordability issues intensify. “After years of rapid rent growth, working-class renters are struggling to afford housing, while lifestyle renters—many of whom have had wages, incomes and wealth rise faster than the national average—are able to pay higher rents despite vast new supply,” it says.

Of course, housing affordability has been in the spotlight recently, not just for the real estate industry but for the 2020 presidential candidates, as well. It has also been a local focus with rent control legislation passed in New York and Oregon; meanwhile a number of other states are also introducing bills. “As rent control expands, the ability to raise rents may put a ceiling on RBN rent growth and continue to narrow the gap between lifestyle and RBN rent growth,” Yardi-Matrix says.

As for the asset class as a whole, Yardi-Matrix does not see any signs of apartment demand abating. “That doesn’t address whether rent growth can remain elevated, but rents have stayed at above-trend levels during several years of robust supply increases and ongoing issues with affordability, so it seems foolish to discount the market’s potential to maintain its performance over the near term,” it concludes.

 

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Multifamily Absorption Reaches 5-Year High

 

By Erika Morphy | July 08, 2019 at 05:41 AM via GlobeSt.com

 

US apartment demand spiked during the second quarter of 2019 with product absorption climbing to a five-year high, according to RealPage. It reports that net move-ins totaled 155,515 units in the April-through-June time frame, topping Q2 2018 product absorption by 11%.

There are a number of reasons for the increase, says RealPage Chief Economist Greg Willett. Solid economic growth is encouraging new household formation, while the number of existing renters purchasing homes remains limited compared to historical levels, he says. The time of year also helps, he adds.

“Apartment leasing activity accelerates during the warmer weather months, and demand is proving especially strong in this year’s primary leasing season.”

With demand proving so strong in the second quarter, occupancy tightened despite the delivery of quite a bit of new product. Occupancy climbed to 95.8% in the second quarter, up from 95.4% a year earlier.

Rents for new leases increased 1.8% during the second quarter, which normally is when pricing moves most rapidly during the course of the year. Rents are up 3% from year-ago levels, reaching an average of $1,390 per month.

Building in the US apartment sector remains at three-decade highs, RealPage also reports—which could lead to near-term risk. Market-rate apartment properties under construction contain more than 418,000 units that will be finished during roughly the next 18 months.

Willett reports that most economists are anticipating a slowdown in economic growth, which will cool support for housing demand. “It would be tough to maintain price growth with so many new properties moving through initial lease-up at a time when demand has weakened.”

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Gulf Coast of Florida Apartment Outlook – 2nd Quarter 2019

Apartment Demand Outpaces Supply;
Investors Seek Value-Add Opportunities Metrowide
New residents filling rentals. The net migration of more than 39,800
people this year will bolster demand for apartments in Tampa-St.
Petersburg. Many of the new residents are moving for job opportunities.
Employers added roughly 29,400 positions year over year in March with
the largest gain in the relatively higher-paying business services sector.
With more people working and salaries rising, the median household
income jumped more than twice the national level over the past 12
months, allowing more people to move out on their own. The additional
households are generating robust demand for units.
Developers focusing on Central Tampa. Builders completed nearly
5,400 rentals during the past four quarters and almost all submarkets
received additional inventory. The bulk of new units arrived in Central
Tampa. The submarket received roughly 1,300 rentals over the past 12
months. Still, vacancy in the area dipped 10 basis points annually as
demand for apartments in walkable urban neighborhoods proliferates
from both young professionals and downsizing empty nesters.

A potential headwind for new luxury Class A units in near downtown cores may
come from an increase in condos due for completion this year. However,
a thinner construction pipeline expected throughout the market in the
quarters ahead won’t keep pace with the steady need for apartments,
holding vacancy tight and pushing rent to a new high.

 

Investment Trends

• Tampa-St. Petersburg’s favorable rental market and the low cost of
  financing have many investors opting to refinance and hold rather
  than divest assets. As a result, the pipeline of for-sale listings is slim,
  increasing competition and pushing prices higher.
• • The wave of construction, especially in the downtown cores, continues to draw out-of-state investors. Over the past 12 months, newer
  Class A assets have traded above $220 per door on average with cap
  rates generally below the mid-5 percent range. A couple of new luxury
  buildings in downtown St. Petersburg topped $300 per unit.

• SALES TRENDS
  • Investors remain interested in metro apartment assets, although
  demand outpaces supply. Transaction volume rose slightly during the
  past 12 months.
  • During this period, increased competition pushed the average price
  up 11 percent to $119,600 per unit, while the average cap rate dipped
  30 basis points year over year into the low-6 percent range.

2Q 2019 LOCAL APARTMENT REPORT

Historically Tight Labor Market Boosts Housing Demand;
Investors Target Assets in Secondary and Tertiary Markets

The historic decline of unemployment to a 50-year low has become a major force driving household formation, pushing apartment housing demand to record levels. Secondary and tertiary markets offer a particularly compelling outlook as companies have expanded their recruiting efforts to a wide range of metros.

Key Features Include:

• Though new supply remains elevated, the pipeline has begun to taper in most markets
• Class C vacancy probes new lows as availability of workforce housing remains tight
• Retreating interest rates and steady yields keep bidding competitive

 

Multifamily 2019 Outlook
20 BASIS POINT
decrease in vacancy

6.6% INCREASE
in effective rents

3,900 UNITS
will be completed

* Cap rates are through 1Q; Treasury rate as of March 29

Sources: CoStar Group, Inc.; Real Capital Analytics

• Tampa-St. Petersburg’s favorable rental market and the low cost of
financing have many investors opting to refinance and hold rather
than divest assets. As a result, the pipeline of for-sale listings is slim,
increasing competition and pushing prices higher.
• The wave of construction, especially in the downtown cores, continues to draw out-of-state investors. Over the past 12 months, newer
Class A assets have traded above $220 per door on average with cap
rates generally below the mid-5 percent range. A couple of new luxury
buildings in downtown St. Petersburg topped $300 per unit.
• Buyers searching for higher returns may find opportunities in smaller
buildings more than 30 years old in Southeast Tampa or Temple Terrace. In these neighborhoods cap rates are roughly 200 basis points
above the metro average.

 
Investment Trends

Deliveries reached a 16-year peak last
year as 5,400 units were placed into
service. During 2019, completions will decrease to the lowest level in three years.
Steady demand for apartments amid a
slower construction pipeline will drop
vacancy to 4.4 percent in 2019, the lowest
annual level in 14 years.
Tight vacancy is producing robust rent
growth. Following a 7.2 percent surge
last year, effective rent ends 2019 at an
average of $1,263 per month.

 

SALES TRENDS
• Investors remain interested in metro apartment assets, although
demand outpaces supply. Transaction volume rose slightly during the
past 12 months.
• During this period, increased competition pushed the average price
up 11 percent to $119,600 per unit, while the average cap rate dipped
30 basis points year over year into the low-6 percent range.
Outlook: Private buyers will continue to search for older Class C assets
with value-add potential. Properties in Pinellas County or in neighborhoods surrounding downtown Tampa will be most often targeted.