GSEs: Multifamily Market Healthy, But Affordability Remains Problematic
Steady economic growth and key drivers should keep the multifamily market moving forward in 2016, but affordability remains a significant concern, Freddie Mac and Fannie Mae said.
New multifamily supply should continue to enter the market this year while plans for additional construction should continue to increase, Freddie Mac’s Multifamily Outlook predicted. Originations should grow to $250-260 billion due to increasing property prices, new completions and maturities.
“We started 2016 with good momentum on the heels of a strong year,” said Freddie Mac Multifamily Vice President of Research and Modeling Steve Guggenmos. “This year more multifamily supply will enter the market at a pace not seen since the 1980s.”
Guggenmos said Freddie Mac expects the multifamily sector to continue to grow “at a robust level” and predicted the national vacancy rate will stay below historical average throughout the year and will end the year under five percent. “As a result, rent growth will remain strong as new supply continues to be met with significant demand,” he said.
The Mortgage Bankers Association’s outlook survey reported that 90 percent of respondents expect loan originations will increase over the remainder of this year and said multifamily lending could increase 11 percent.
“Vacancies are low and rental rates, job growth and valuations are up–all of these factors increase the demand for and supply of multifamily mortgages,” said MBA Vice President of Commercial and Multifamily Research Jamie Woodwell. “In particular, there is probably more attention than ever before to the affordable multifamily market.”
In a separate commentary, Fannie Mae Economists Nuno Mota and Tatyana Zahalak said an evolving apartment supply could harm lower-income renters. They estimated developers added 183,000 units to multifamily housing stock annually between 2005 and 2013 while 123,000 units per year left the market due to obsolescence or other reasons.
“Lower-income renters lost ground in both additions to and losses from the multifamily rental housing stock,” Mota and Zahalak said. More than half of the 84,000 rental units lost annually between 2011 and 2013 were affordable to very low-income renters–those with a median monthly rent of $600 in 2011–compared with a median rent close to $800 for units remaining in the stock. But very low-income renters could only afford one-quarter of the units added since then and the median rent of a unit added in 2013 equaled $1,000, they said.
“These trends show the challenge facing lower-income households that are looking for affordable multifamily rental housing,” Fannie Mae said. “With little new stock affordable to them, many lower-income households are renting apartments that are beyond their financial means, leaving them less money for food, healthcare, transportation to work and other necessities.”
In a move that could alleviate rental affordability problems, both agencies seek to increase multifamily lending this year, said JLL International Director Faron Thompson. Fannie Mae’s multifamily lending volume exceeded $42 billion last year while Freddie Mac eclipsed Fannie Mae’s volume for the first time, reaching $47.3 billion to become the nation’s leading multifamily lender.
“One or even both of the GSEs to eclipse $50 billion [in 2016 multifamily lending],” Thompson said. He called both agencies “confident” to go after deals.
“There’s a rich, deep bench targeting more affordable product,” Thompson said. “Look for Freddie and Fannie to allocate more toward workforce housing lending.”
