A One-Size-Fits-All Approach by Governments To Multifamily Housing Does Not Work

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Renting is now seen as a desirable housing choice, and government needs to help the multifamily industry with housing-finance reform to help create more affordable housing options in the future.

That was the message delivered recently by Susan Ansel, President and Chief Executive Officer, Gables Residential, to the Senate Committee on Banking, Housing and Urban Affairs.

Rental Housing Background – The Supply-Demand Imbalance

There has been a fundamental shift in our nation’s housing dynamics as changing demographics and lifestyle preferences have driven more people towards the convenience of renting, Ansel told the committee.

“This demand is fueled by several demographic factors. There are over 75 million people between 18 and 34 years old (traditionally the “prime renter” age group) who have recently entered or will soon be entering the housing market, primarily as renters.

“Similarly, nearly 93 million Americans aged 55 or older have the option of downsizing as their children leave the house, and many will choose the convenience of renting, and we are already seeing that. Over half (59.2 percent) of the net increase in renter households between 2007 and 2017 came from householders 55 years or older.

“Immigration accounts for a significant portion of apartment demand – over one in four (25.1%) apartment householders were born outside of the United States. Given these demographics, it is unsurprising that the apartment vacancy rate has remained at or below five percent for the past five years,” she told the committee.

A One-Size-Fits-All Approach by Governments To Multifamily Housing Does Not Work

Susan Ansel said, “The committee has an opportunity to examine what role the government-sponsored entities could provide in facilitating the reduction of these barriers and promoting the development of apartments for all income levels.”

Western states will have highest demand

The western United States, as well as states such as Texas, Florida and North Carolina, are expected to have the greatest need for new apartment housing through 2030, although all states will need more multifamily rental housing moving forward.

Across all markets, the supply of multifamily rental housing at a variety of price points will play a role in promoting economic growth, attracting and retaining talent and encouraging household stability for all American families.

32 percent of multifamily cost in local, state and federal regulation requirements

A recent study by NMHC and the National Association of Home Builders (NAHB) based on responses from a variety of multifamily developers throughout the country found that on average, 32 percent of multifamily development costs are attributable to the costs associated with complying with local, state, and federal regulations. In a quarter of the cases, that number can reach as high as 42.6 percent.

“The committee has an opportunity to examine what role the government-sponsored entities could provide in facilitating the reduction of these barriers and promoting the development of apartments for all income levels,” she said.

 

Principles of multifamily housing finance reform

Many factors influence the apartment industry’s health and its ability to meet the nation’s growing demand for rental housing, but the availability of consistently reliable and competitively priced capital is absolutely essential, according to the testimony before the committee.

“While our organizations remain agnostic regarding the source of our debt financing, we strongly believe capital must be consistently available across all markets and product types. In that spirit, NMHC and NAA urge the Committee to recognize the unique needs of the multifamily rental industry. We believe the goals of a reformed housing finance system should be to:

  • “Maintain an explicit, appropriately priced and paid-for federal guarantee for multifamily-backed mortgage securities available in all markets at all times;
  • “Recognize the inherent differences of the multifamily business from the single-family business;
  • “Promote private market competition;
  • “Protect taxpayers by keeping the concept of the enterprises’ multifamily first-loss risk sharing models;
  • “Retain the successful components of the existing multifamily programs in whatever succeeds them; and
  • “Avoid market disruptions during the transition to a new finance system.”

Recognize differences between multifamily and single-family businesses

“A one-size-fits-all solution will not work. The two sectors operate differently, have divergent performance records and require distinct reform solutions,” Ansel told the committee.

“The capital sources for multifamily are not as wide or as deep as those financing single-family and the loans themselves are not as easily commoditized. The GSEs’ (government sponsored enterprise) multifamily programs adhere to a business model that includes prudent underwriting standards, sound credit policy, effective third-party assessment procedures, risk-sharing and risk-retention strategies, effective loan portfolio management and standardized mortgage documentation and execution.

“Moreover, the financing process, mortgage instruments, legal framework, loan terms and requirements, origination, secondary market investors, underlying assets, business expertise and systems are all separate and unique from single-family home mortgage activities.

“We strongly recommend that any reform measure include a separate multifamily title. This separate title should not only address the successors to the GSEs’ multifamily programs, but also how the transition to that new system will be handled,” she said.

Summary

“As this committee continues its important work of assessing and crafting a reformed housing-finance model, Congress must understand that a one-size-fits-all approach will not work,” Ansel said.

“The meaningful differences between the single-family and multifamily sectors, both in how they operate and how they have performed, require different solutions to avoid putting at risk the 39 million Americans who rely on the apartment industry for their housing. In keeping with principles for housing-finance reform, the apartment industry asks that you focus your efforts on the importance of a government guarantee to ensure capital is available in all markets in all economic circumstances and the important role a government guarantee plays in the development and preservation of rental housing at all income levels in America today.

“The existing enterprise frameworks for protecting taxpayers and requiring private-capital participation should serve as a guide for any discussions on a reformed system. By retaining the successful elements of the current system and providing an explicit guarantee for multifamily debt, we believe this committee can succeed in ‘doing no harm’ to our industry, a goal expressed by members on both sides of the aisle and the administration,” she said.

Read the full statement here.
Susan Ansel is Chief Executive Officer and President of Gables Residential, a private real estate investment trust (REIT) focused on development, acquisition and management of institutional quality apartment communities throughout the United States. Ms. Ansel has been with Gables Residential since its Initial Public Offering and with its predecessor Trammell Crow Residential since 1987.

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