Stat to Watch WHOLE NEW WORLD Costs and competition will control construction in ’07.
Nationally, the apartment market will continue to improve during 2007, thanks to housing affordability problems, moderate job growth, and modest increases in the supply of new units.
Recent revenue improvements in the rental industry would suggest that development activity should be accelerating, but the combination of higher development costs and competition from re-conversions and shadow rentals are keeping construction in check.
High costs are making it difficult to pencil out new projects and developers are waiting to see how the slowing condo market will affect apartment supply. While the number of units completed in the third quarter was only 33 percent below the quarterly average since 2000, completions as a percent of inventory are still running 60 percent below the 2000 level. Meanwhile, condo conversion activity continue to wane.
At the same time, favorable fundamentals in the supply and demand of apartment units support rising revenues. Occupancy has increased 20 basis points to 94.6 percent. Driven by tight market conditions, effective rents posted the second-largest quarterly increase since the market bottom. Year-over-year, effective rents are up 5.8 percent. The revenue index, which is calculated by multiplying occupancy by the average inflation-adjusted effective rent, reflects this steady upward trend. —Marcus and Millichap
State and local governments fund transportation and parks and recreation through bonds before housing, according to a report recently released by the Government Accounting Office.
Of those housing bond dollars, more than half go to single-family projects. From 2000 to 2004, rental housing accounted for, depending on the year, 33 to 45 percent of the debt issued for housing efforts. The remaining money went to single-family housing, including programs where state and local governments use the capital from bond issuances to finance below-market-rate mortgages for financially challenged home buyers.
The fact that housing comes in third doesn’t surprise Robert Greer, president of Michaels Development Co., an affordable housing developer in Marlton, N.J. “They have so many things on their list,” he says. “The communities don’t get the money they used to from federal government.”
Still, from 2000 to 2004, multifamily housing projects did receive $46.4 billion (in 2004 dollars) in 3,557 bond issues. In all, state and local governments allocated 6 to 10 percent of their total bond issues for housing.
“Housing should be one of the primary uses for these [bonds],” says Robert Dietz, the tax economist for the NAHB. “In the tax-exempt status provided by the federal revenue code, housing is clearly one of the intended targets.” —Les Shaver
HOUSING DOLLARS The amount of money state and local governments have borrowed annually for multifamily housing varies.