Market reports & thoughts on the affordable housing crisis

It’s that time of year again, market research reports from appraisers, brokers, lenders and lots of other firms are done.   If you are like me, you are constantly reviewing these reports to bring context to the overall market, help evaluate last year and hopefully learn something about how to address the future.  Below are links to some of the larger reports that I look at an annual basis, there are also lots of local reports to evaluate and those are often more focused than the national ones.  If there are any local reports you like or I am missing a good national report please let me know.

Goldman Sachs – 2019 Outlook: The Home Stretch

Integra Realty Research – Viewpoint 2019 [registration required]

 Marcus Millichap – 2019 Multifamily Investment Forecast [registration required]

PGIM Real Estate – Trends for 2019

National Real Estate Investor – 2019 Market Outlook

PwC – Emerging Trends in Real Estate

Deloitte – 2019 Commercial Real Estate Outlook

CBRE – U.S. Multifamily Figures Q4 2018

Most interesting thing about this year’s reports, at least from a multifamily perspective, is how similar they are to last year.  Markets are doing well, but everyone is concerned about the length of this “bull market” in multifamily rents and values.  Things have been going on so well for so long that it just must end, doesn’t it?

OK, some cities are doing better and some worse.  Clearly class A supply is up in major urban areas, particularly on the coast, and that has affected occupancy, but mainly in class A properties.  Most reports and experts seem to think this is a short-term issue and that these units will be absorbed relatively quickly.   Demographics are strong, millennials and baby boomers are moving into urban areas pushing the need for multifamily housing and quite honestly not enough is being built.  Maybe this ride is not over!

While all this is good for multifamily owners the affordable housing crisis continues and maybe is getting worse.   There is discussion in these reports about this issue, but maybe not enough.  There is discussion of some of the various proposals to alleviate the problem including zoning changes, rent control and development requirements.  If any of these proposals are adopted this will affect rents, values and operations of multifamily properties so we all need to keep a focus on the proposed solutions, or we will be surprised by the solutions and not in a positive manor.

From a personal standpoint the affordable housing crisis is something I think needs more focus.   In some ways the cure is easy, we need more housing and we need a lot of it.    The question is how you get it, and can you put it where it’s needed.   Zoning and building code regulations are one part of the solution, but from my perspective it’s mostly a political/NMBY issue as well as a cost/financing issue.  As for NMBY we need to be able to build larger properties in urban areas and we need to open up zoning laws to allow for current single-family land and houses to accommodate more people.   Air BnB has shown us that owners of current housing are willing (or maybe economically forced) to change the way they live.   Allowing existing single-family housing to be converted to multiple units or to build on underutilize single family land will increase the supply of housing and is probably the quickest way to address this in in some cities.  Yes, this will change the nature of many neighborhoods and put some pressure on other municipal services, but it’s better than homelessness and stagnation because people cannot afford to live where they work.

As for costs and financing there does not seem to enough focus on construction.  There is no Freddie/Fannie for construction lending and HUD construction is too slow and costly.   Allowing permanent financing at the time of construction with a slightly more aggressive lending posture would create more properties.  Maybe this can be done in conjunction with set asides or restrictions on the type of tenancy to have these properties focus more on workforce or affordable housing.   The LIHTC program can be revamped to eliminate rehabilitation of existing properties and focus exclusively on new construction.  Yes, it’s good to improve the existing housing stock, but that does not help the housing crisis, just the specific tenants in those buildings.    Also, focus LIHTC on urban housing and not only in affordable tracks.  While rural housing is an issue creating more multifamily in rural areas is not the solution.  Finally, the opportunity zone program has some good ideas that might spur some development.  I think there are lots of issues with that program and it’s a very large give away (more than is needed) but using tax policy to encourage development is a good idea. 

Lots of solutions for the housing crisis, but in these current times I doubt the political will is there to do much.  I guess that’s good for multifamily owners, for now.  However, if this issue is not addressed in a positive way there is more chance for it to be addressed in a manner that will be detrimental to property owners and the multifamily industry.