New Harvard Report Cites Difficulties in Multifamily Housing Sector
By Caitlin Jones
3 min read
Tax Credit Advisor, August 2009: Problems in the multifamily rental housing sector, including weakening demand, are likely to worsen at least for the short term, suggests the new annual housing report from the Joint Center for Housing Studies of Harvard University.
The new report, The State of the Nation’s Housing: 2009, focusesprimarily on recent developments and trends and the future outlook for the single-family homeownership market, which has been beaten down by rising mortgage delinquencies and foreclosures, rising unemployment, and other forces.
But the report also talks about what has been happening and is likely ahead in the rental housing sector.
“With the recession taking its toll, vacancies increasing, and credit tight, the financial performance of rental properties is likely to slide further in the short term,” the report says.
According to the report, the national rental vacancy rate rose to 10% in 2008, just shy of the record of 10.2% set in 2004. For multifamily buildings with 10 or more apartments, the damage was even greater, with the vacancy rate rising nearly a full point to 11.1%. The report suggests the increased supply of vacancies in these larger buildings may be due in large part to increasing conversions of condominiums to rental units.
During the same period, nominal rents rose by 3.7% but real rents fell by 0.2%.
The report indicates that the multifamily rental sector has benefited from the fact that the vacancy rate for rented single-family homes rose just slightly in 2008, to 9.8%. However, it suggests that the continued economic downturn may well exacerbate rental vacancies and depress rents in the near term. Rising unemployment will weaken rental demand because those most vulnerable to job losses tend to be younger persons who more often are renters. In addition, job losses could foster more rentals of single-family homes that à together with other kinds of small rental properties à are mostly owned by individuals and couples. Moreover, more foreclosed homes could come back on the market.
The report also predicts a shift in housing demand, pointing to a significant growth in the number of “echo boomers” Ã individuals now entering the peak household formation years of 25 to 44 Ã that will bolster the markets for rentals and starter homes. It also says demand for retirement housing will rise as the leading edge of the baby-boom generation reaches age 65. Finally, the report predicts that even with lower immigration levels, minorities will fuel 73% of household growth during 2010-2020.
The report expects multifamily loan performance to deteriorate further since the economy is still contracting.
It notes that the real price of multifamily properties sold in 2008 dropped for the first time in years as investors demand a higher return for taking on greater risk. Falling valuations reduced the real volume of multifamily transactions from $103 billion in 2007 to $37 billion in 2008.
(Report: http://www.jchs.harvard.edu)
