BLOG VIEW: Later this week, MortgageOrb's weekly E-Feature will focus on affordable housing problems within the multifamily sector. If you have not been keeping up on that subject, I can summarize the state of affairs in two words: It stinks.
‘Supply is already falling short of demand,’ said Richard L. Mostyn, vice chairman and chief operating officer of The Bozzuto Group, speaking on behalf of the National Multi Housing Council at a recent hearing of the House Subcommittee on Insurance, Housing and Community Opportunity. ‘With forecasts indicating that there could be upwards of 7 million new renter households this decade, an estimated 300,000 units a year must be built to meet expected demand. Yet even though multifamily starts rose 60 percent in 2011, rebounding from record lows in 2009 and 2010, ground was broken on just 167,400 apartments last year.’
Sheila Crowley, president and CEO of the National Low Income Housing Coalition, was also at the subcommittee hearing, and she noted that for every 100 extremely low-income households, there were only 30 affordable housing rental units available. Crowley added that those in search of affordable multifamily housing would not find much help from the private sector.
‘There is no evidence that the private market is interested in or willing to invest in rental housing that can be afforded by the lowest-income household, despite the huge demand,’ she said. ‘This is a role that government must fill, not unlike flood insurance. While many states and localities have created their own programs, they are small in comparison to the need.’
That sounds wonderful, except for the itty-bitty fact that government has no history of seriously addressing the issue of affordable housing. Really, if government could get a handle on the perennial problem of the lack of affordable housing, this subject would be relegated to the history books.
In June 2011, the U.S. Department of Housing and Urban Development (HUD) published a study that found the nation's 1.2 million public housing units needed an estimated $25.6 billion for large-scale repairs. That study was actually the result of a November 2007 request by Congress for HUD to study the matter – yes, it took HUD three and a half years to figure out that public housing was a physical mess.
‘The new capital-needs estimate far exceeds our annual budget for these repairs and illustrates why America needs a long-term strategy to address the loss of thousands of public housing units annually,’ said HUD Secretary Shaun Donovan when the study was published.
That was over a year ago. Do today's math: A loss of thousands of public housing units annually plus the need for an additional 300,000 rental units per year equals a fiasco. Can anyone seriously expect the government to alleviate this problem? When was the last time you heard President Obama acknowledge this problem? Heck, when was the last time Mitt Romney said ‘affordable housing’ in public?
Circling back to Crowley's comments, it is unfair to say that the private sector has no interest in this area. Last month, the National Association of Home Builders (NAHB) announced that its Multifamily Production Index (MPI) has recorded its highest reading since the third quarter of 2005. Granted, the NAHB's multifamily vacancy index dropped last month to its lowest recording the inception of the index in 2003. But the lack of vacancies is not because real estate finance professionals are shunning the sector.
‘In spite of continuing difficulties in the capital markets, it appears that new construction is under way,’ says W. Dean Henry, president of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB's multifamily leadership board. ‘This is certain to help satisfy some of the pent-up demand that has occurred over the past several years.’
Indeed, the Mortgage Bankers Association reported a 45% increase in loans for multifamily properties during the first quarter of this year – and this was the only sector within the wider commercial real estate industry that saw a quarterly increase. The real estate finance world is interested in this area, especially as growing demand could translate into corporate profits for the development and construction of such housing.
Clearly, this situation will not be alleviated overnight. But if I had a Romneyesque $10,000 bet to wager, I'd sooner put the money on the private sector taking the lead to address the affordable-housing shortage before the government even remembers that something is amiss. Nobel Prize-winning economist Milton Friedman probably said it best: ‘The government solution to a problem is usually as bad as the problem.’
– Phil Hall, editor, MortgageOrb
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