Apartment Construction

Apartment Market Post Covid19

New reports show that rental units accounted for 96% of multifamily construction starts during the second quarter of 2020, which took additional market share from the condo market.

According to The National Association of Home Builders, quarterly data from the Census Bureau, noted that 76,000 rental multifamily started and with only 3,000 condo starts.

By comparison, apartment starts have been about 90% or higher since late 2014. Apartment starts hit the bottom in Q3 2005, when condo construction was booming. During that time, apartment construction hit 47%.

Rental multifamily starts traditionally have held more market share over condos. From 1980-2002, the average market share for apartments was 80%, according to NAHB.

While more apartments are going up, their square footage is staying down, according to NAHB. The average square footage of rental units during the second quarter of this year was 1,126, well below the pre-Great Recession peak of about 1,300. In early 2015, square footage reached a post-recession peak of 1,247 square feet.

Depressed dwelling sizes may not last long, according to NAHB, particularly in light of the new work from home trend.

Though apartments took more market share from condos, new construction has been reduced by 12% this year due to Covid19, according to RentCafe Blog. “The downtrend is mainly due to the slower pace of construction, as a result of a shortage of available construction crews, funding and permits, along with some temporary bans on construction projects in certain states,” the report said.

However, housing construction overall has been driving up lumber prices according to NAHB.  The price of lumber has shot up 110% since mid-April. It is estimates that these recent gains have boosted typical new single-family home prices and apartment prices by approximately $14,000 and $5,000, respectively.

Pricing of multifamily has so far, not been too affected by COVID-19. At least it hasn’t caught up to it yet.

Housing Infrastructure

Housing Infrastructure Legislation

Sweeping infrastructure legislation released Monday, June 22, 2020 in the House of Representatives includes provisions to establish a permanent minimum 4 percent rate for the low-income housing tax credit (LIHTC), increase the annual LIHTC allocation amount, temporarily reduce the 50 percent test for bond-financed housing to 25 percent and permanently extend the new markets tax credit (NMTC) at $5 billion (with additional allocation in 2020 and 2021). H.R. 2, the Moving Forward Act, also would increase the historic tax credit (HTC) applicable percentage from 20 percent to 30 percent for five years and delay the phasedown of the renewable energy investment tax credit (ITC) until 2026.

Among the affordable housing provisions, the bill would increase the annual 9 percent LIHTC allocation amount from $2.81 to $4.56 per capita and boost the state private activity bond ceiling from $105 per capita to $135 per capita. Both provisions would increase the small-state minimum. The legislation would also provide a 150 percent first-year LIHTC award to address issues related to COVID-19 and provide several basis boosts for LIHTC properties, similar to proposals in the Affordable Housing Credit Improvement Act (H.R. 3077/S. 1703). It would also provide more than $100 billion in supplemental appropriations for various HUD programs, mostly notably $70 billion for the public housing capital fund.

The NMTC would be permanently extended, with an additional $500 million allocation for the 2019 round (for a total of $4 billion) and temporary increases for 2020 (for a total of $7 billion) and 2021 (a total of $6 billion) before settling at $5 billion 2022, with an annual adjustment for inflation. The bill would also allow the NMTC permanently to be taken against the alternative minimum tax, and instructs Treasury to ensure that tribal areas receive a proportional allocation, similar to existing policy for non-metro areas.

The legislation would increase the HTC from its current 20 percent to 30 percent for 2020 through 2024, before beginning a phasedown for most HTC properties back to 20 percent through 2027. The bill would also permanently increase the HTC percentage for certain small projects to 30 percent, and several other proposals from the Historic Tax Credit Growth and Opportunity Act (H.R. 2825/S. 2615).

The bill would delay the phasedown of the renewable energy ITC until 2026 and allow many uses of the production tax credit to cover facilities that begin construction by the end of 2025. A section-by-section summary of the bill is available.