Comparing Cost of Renting vs Owning in Each State

HowMuch put together a chart showing the cost of renting vs. owning in each state and it’s interesting:

Our latest visualizations use data from the U.S. Census Bureau’s most recent American Community Survey to compare the cost of renting a home and owning a home in each state. To calculate the median monthly mortgage payment, we subtracted median housing costs of houses without mortgages from median housing costs of mortgaged houses. For median rent payments, we used contract rent, which is defined as the monthly rent for a home without including payments for utilities.

Source: HowMuch.net

Student-Style Living for Everyone?

It was only a matter of time: some developers are interested in taking the apartment model familiar to everyone in the student housing sector and opening it up to the masses. There are challenges, not the least of which are local zoning ordinances, but at a time when affordable market-rate housing is at a premium, this approach might actually have a chance of catching on. The Atlantic has the story of one company’s effort to introduce co-living in a Rust Belt city’s downtown:

On Friday, on the top two floors of the building, he’s starting construction on a space he envisions as a dorm for Millennials, though he cringes at the word “dorm.” Commonspace, as he’s calling it, will feature 21 microunits, which each pack a tiny kitchen, bathroom, bedroom, and living space into 300-square-feet. The microunits surround shared common areas including a chef’s kitchen, a game room, and a TV room. Worried about the complicated social dynamics of so many Millennials in one living unit? Fear not, Evans and partner John Talarico are hiring a “social engineer” who will facilitate group events and maintain harmony among roommates.

Forget communes or co-ops. Millennials, Evans says, want the chance to be alone in their own bedrooms, bathrooms, and kitchens, but they also want to be social and never lonely (hence #FOMO)…

The building even appeals to people outside the “Me Generation.” Evans says he’s had interests from all age groups, including empty nesters looking to be more connected to the city.

Michelle Kingman is one of the Syracuse residents interested in Commonspace. Kingman considers herself a minimalist—until she rented an apartment in February, all of her possessions could fit into her car, she told me. Now she and her husband Julian live in a two-bedroom downtown, and have turned one of the bedrooms into a pristine meditation space. They’d have to give that up if they moved into a tiny Commonspace apartment, but Kingman, who is working on her own startup, likes the idea of being part of a big neighborhood community in one building. And when she wants to escape that and retreat into her tiny microunit, she says, she’ll be able to.

“It’s the best of both worlds,” she told me. “You have roommates, but they’re not roommates.”

  

Student Debt Impacted U.S. Housing Market

One of the demographic factors contributing to the continued strength of the apartment industry is that young adults are waiting longer than previous generations to purchase their first homes. One factor contributing to that wait is that many of them are carrying significant student loan debt. From the Wall Street Journal:

Homeownership among people ages 24 to 32 fell 9 percentage points, to 36% from 45%, between 2005 and 2014, the Fed said. While many factors affected the homeowner rate, the Fed said 2 percentage points, or about a fifth, of the decline was tied directly to student debt. That translated into 400,000 borrowers who could have owned a home by 2014 but didn’t because of student loans.

Source – Wall Street Journal

The article goes on to point out that the study period for these results (2005-14) corresponded with a sharp increase in student loan delinquencies, and that in ensuing years many borrowers have enrolled in plans that reduce their monthly bills, but there isn’t any hard data yet that shows the impact has been reversed completely.

How Will Tariffs Affect Multifamily Development?

In a post on the BMO Harris Bank site, Managing Director and Head of US Commercial Real Estate Kim Liautaud looks at how tariffs could impact multifamily development:

In the multifamily market, project underwriting has tightened across the board because capital providers are concerned that the sector is late in the cycle, according to Chris McKee, head of development at CRG, the real estate development arm of Clayco. McKee explains that while trended rents used to attract equity providers, there’s now a reluctance to underwrite projects unless they’re at flat rents. Tariffs have only exacerbated that effect.

“We’re seeing contractors start to plan for increased costs,” McKee says. “Steel and aluminum companies know the tariff increases are coming, and they’re passing the costs along to general contractors. With flat rents and construction costs on the rise, spreads have been squeezed and multifamily projects became more difficult to underwrite. Tariffs have only added to that, and that trend will likely continue for the foreseeable future.”

McKee notes that trended rents still drive multifamily developments in certain markets where availability is tight, such as Seattle, Lehigh Valley in Pennsylvania and Inland Empire in Southern California. Less constricted markets, however, require more caution. “You may get squeezed a little bit by those cost increases because you may not have the rent increases that you would get in some of the tighter submarkets,” McKee says…

When it comes to managing multifamily projects, McKee stresses focusing on fundamentals and relationships. “Look for the right opportunity in the right location,” he says. “If you have a long-standing relationship with an equity or debt provider, you can make a case for rent increases specific to a high-growth micro-market, such as Tampa or Fort Worth. It’s an advantage to have pre-existing relationships with equity lenders who trust and believe in you. So when you go to show them something, they know you’ll deliver.”

One-Off or Early Signs of a Trend?

Those of us who were around pre-Great Recession can remember a time when it was relatively commonplace for apartment communities to be converted to condos. Then the mother of all recessions happened and rental housing became the most lucrative, and safest, real estate game in town and we stopped seeing those conversions – if anything we saw condos converting to rental units.

That’s what makes the news of this move in Winston-Salem pretty interesting. From a story in the Triad Business Journal:

Winston-Salem investors Ben Bloodworth and Taylor Williams purchased the 836 Oak Street Lofts apartments in downtown Winston-Salem for $2.75 million with plans to convert the 26 apartments in the former mill facility into condos.

The purchase included 1.22 undeveloped acres adjacent to the apartments.

Bloodworth told Triad Business Journal that all current leases would be honored, and the units would be upfitted and sold as the leases expire.

Downtown Winston-Salem is experiencing a boom of new housing, retail, restaurants and entertainment with the growth of the Wake Forest Innovation Quarter, including the Bailey Power Plant, and the office renovation projects at the GMAC tower.

Downtown Winston-Salem is a particularly hot market in the Triad right now, so this might portend a larger trend across the region, but it will be interesting to see if other investors follow suit, especially in the downtown markets of the Triad’s cities.

Co-Living Not Just for Students Anymore

With the growing popularity of shared workspaces (think We-Work) it probably shouldn’t surprise anyone that shared living spaces are beginning to catch on. Of course, the student housing sector has been using this model for years, but in the market rate apartment world it hasn’t been seen until very recently. One issue is that local ordinances often prevent them, but as the affordable housing issue becomes more prevalent in virtually every city and town across the country, both housing providers and municipal leaders are looking for creative solutions and co-living looks like a good option. The Wall Street Journal recently ran an article that had some interesting data about this new housing approach:

This product, which is less than 10 years old and found primarily in large U.S. cities, represents only a tiny niche in the multibillion-dollar apartment industry. But developers are now preparing to build some of the largest new co-living properties in North America, a sign that the appeal of this type of housing could be broadening…

San Francisco-based co-living startup Starcity last week agreed to purchase a development site in downtown San Jose where it plans to build a 750-unit co-living building…

Rents at the company’s properties range from about $1,600 to $3,100 a month—not cheap but less than the average studio apartment rents in the Bay Area. Half of the rents at the new San Francisco property will be even further below market, affordable to people making as little as $35,000 a year, under new state legislation that streamlines the permitting process for projects with an affordable component.

“To tackle our affordability crisis we need both private sector solutions and public sector solutions,” said San Jose Mayor Sam Liccardo, referring to his city’s new co-living project.

 

Home Sales Slump, Rental Market Rises

Home sales have slowed in recent months and according to this article in the Wall Street Journal, the culprits contributing to the slowdown in the for-sale market are rising prices, rising mortgage rates and the Trump administration’s tax bill that reduced incentives to own homes. That could be good news for the apartment industry:

Yet other analysts argue that all the gloom hanging over housing is good news for owners of apartments, like AvalonBay Communities , which is up 7.4% over the past six months, andEquity Residential , which has added 5.7% in that time. Rental-home companies have also gained, with American Homes 4 Rent climbing 3.8%.

“Having pressure on home sales is a positive for the rental side of the industry,” David Singelyn,  American Homes chief executive, told investors recently. “It should all fare very, very well for pricing power going forward.”

Source: Wall Street Journal

In fact, we could also see room for rents to rise in the near future:

Not only is the added cost likely to keep some renting longer, $135 is about 8% of the average monthly rent collected by American Homes, suggesting that there is room for these companies to raise rents and remain less expensive than comparable homes for sale, he said.

To that end, Freddie Mac said last week that about 78% of Americans view renting as more affordable than owning, a rise of 11 percentage points since the mortgage company released similar survey data six months ago. Freddie also said the proportion of respondents who said they have no plans to buy homes also rose.

Hurricane Florence Recovery Challenged by Low Apartment Availability

The Wall Street Journal ran an article highlighting one of the challenges faced by cities like Wilmington and Fayetteville as they start the recovery process after Hurricane Florence – a tight apartment market:

Places like Wilmington and Fayetteville have fewer than 1,500 empty apartment units each, according to apartment research firm RealPage Inc.

The figure is less than half the number of vacant units in a larger center like Charleston, S.C. Houston, which was suffering from a rental glutbefore Hurricane Harvey hit last year, had some 70,000 available units just before the storm. Fewer available units in North Carolina could lead to a severe apartment crunch.

Making matters worse, much of the rental inventory in places like Wilmington and Fayetteville is in single-family homes, analysts say. This type of housing is more vulnerable to storm damage than higher-rise apartment complexes…

Cindy Clare, chief operating officer for Greensboro-based Bell Partners Inc., said it is difficult to assess the damage to the company’s four properties in the Wilmington area because all roads into the area are closed and most of the properties still don’t have electricity.

Rental Markets Cool Down in Many Large US Cities

Cities that were experiencing very strong rent growth just two or three years ago are now experiencing flat year-over-year growth and in some cases even year-over-year declines. Some of this shift can be attributed to red-hot construction volume, and some can be attributed to other factors like millennials (finally) moving into home ownership in significant numbers. From Bloomberg:

Tenants are gaining the upper hand in urban centers across the U.S. as new amenity-rich apartment buildings, constructed in response to big rent gains in previous years, are forced to fight for customers. Rents are softening most on the high end and within city limits, Terrazas said. Landlords also have been losing customers to homeownership as millennials strike out on their own, often moving to more affordable suburbs…

U.S. multifamily apartment construction for the past few years have been at levels not seen since the 1980s and rapid rent gains have also encouraged owners of single-family homes and condos to fill them with tenants. Projects opening now were conceived by developers a few years ago when rent gains in the U.S. were peaking at an annual gain of 6.6 percent, according to Zillow data.

The most expensive markets slowed first as new supply became available and tenants struggled to afford rapidly-rising lease rates. Rents in the San Francisco area jumped 19 percent in the year through July 2015. Now, they have been flat since last July. New York rents, which were up 7 percent in 2015, have been decelerating for a couple years, declining 0.4 percent in July.

The two largest metro areas in North Carolina are a part of the trend:

Source: Bloomberg

HUD Shifts Focus to Liberalization of Land Use Regs

The US Department of Housing and Urban Development recently announced that it is going to reverse some Obama-era policies related to integrating lower-income housing into wealthier neighborhoods and place more focus on promoting more affordable housing development overall.

According to an article in the Wall Street Journal, “HUD will begin holding stakeholder hearings on how to change the way it determines whether communities are enforcing the Fair Housing Act, which requires local governments to institute policies that help break down patterns of housing segregation. HUD stakeholders include nonprofit groups, academic researchers and private businesses.

But local officials in some communities said the process was costly and amounted to the federal government forcing them to put low-cost rental buildings in wealthier areas.”

So, instead of focusing its attention on the integration piece HUD will try to create incentives for local governments to liberalize land use policies and make it easier for developers to build more housing in general. From the WSJ article:

Policy makers have long puzzled over how to create incentives for cities and towns to build more housing. Local officials are often in a difficult political position because the loudest voices among their constituents tend to be those objecting to development. At the same time, federal and state governments have limited control over local zoning.

Mr. Carson (HUD Secretary Ben Carson) said the new rule would tie HUD grants, which many communities use to build roads, sewers, bridges and other infrastructure projects, to less restrictive zoning.

“I would incentivize people who really would like to get a nice juicy government grant” to take a look at their zoning codes, he said.