Builder Report Offers Reminder. Affordable Rental Units Needed

By: Jann Swanson • Thu, Jun 9 2011, 3:51 PM

Mortgage News Daily has written much content in recent months concerning the growth of the rental market and the difficulties communities are facing in keeping up with affordable rental housing needs. The latest release of the National Association of Home Builders' Multifamily Production Index (MPI) indicates developers are beginning to notice opportunities in the rental market and are stepping up production of multi-family housing. However, a second index embedded in the report, the Multifamily Vacancy Index (MVI), which measures the multifamily housing industry's perceptions of vacancies, may indicate a growing misalignment between who needs rental housing and who it's being produced for....

The MPI, which tracks multifamily housing industry sentiment, provides a measure of construction activity in three sectors - low-rent units, market-rent units, and "for sale" units. Each of the three components can achieve a score of 0 to 100, the MPI is a composite score of all three. Any score over 50 indicates that more respondents see the market(s) improving than the number who see it getting worse.

The MPI composite increased from 40.8 in the fourth quarter of 2010 to 41.7 in the first quarter of 2011. This was its third consecutive quarterly increase. Improvement, however, was restricted to the pricier market rate rental units. That component of the index rose from 51.7 in the fourth quarter to 61.5 in the first quarter of 2011 while the index for low-rent units dropped 3 percentage points to 45.7 and the "for sale" component was down 1.3 percentage points to 23.4. Expectations for production in six months dropped four percentage points for low-rent and ten percentage points for both market rate and "for sale" units from the perceptions held in the previous quarter. Unfortunately it is in the low-rent sector where needs are greatest.

In a detailed analysis of the American Housing Survey the Department of Housing and Urban Development (HUD) found that 7.1 million households fell into the "worst case" category where over one-half of the monthly income is spent on housing. A recent study by Harvard's Joint Center on Housing found nearly three-quarters of all renters have incomes below the median income for all households including 41 percent in the bottom quartile and 30 percent in the lower-middle one. Only about 10 percent of renters are in the highest income quartile.

The Multifamily Vacancy Index (MVI) measures the multifamily housing industry's perception of vacancies in Class A, Class B, and Class C units; the lower the number on a scale of 0 to 100, the fewer the vacancies. The MBI increased slightly from 33.3 in the fourth quarter to 35.0. Dropping vacancies were concentrated in the lower two sectors with Class C (the lowest priced) apartments increasing from 38.0 to 40.2, Class B jumping to 33.6 from 28.3 while the index for Class A apartments declined from 37.3 to 34.3.

Looking forward six months, respondents saw a tightening market in all three segments, but especially in Class B apartments where the index rose from 24.8 to 33.4.

"Both the Multifamily Production Index and the Multifamily Vacancy Index have emerged as leading indicators that provide information about the likely movement of Census Bureau statistics of multifamily starts and vacancy rates about one to three quarters in advance," NASHB Chief Economist David Crowe said. "Even though we saw a slight increase in the vacancy index in the first quarter, the long-term trend is downward. Given the demographics of demand, we expect that trend to continue.

"Although the increase is cause for optimism, the multifamily market still faces significant challenges, Crowe said. "There is considerable pent-up demand, but the ongoing crisis in funding for new construction means that developers are limited in their ability to meet that demand."

Related MND comments....

"With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom in the housing market", says MND's Managing Editor Adam Quinones. "We already know there is dearth of affordable rental housing available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals."