Key Takeaways from NAA’s Income & Expense Survey

The National Apartment Association recently published the results of their 2018 Income & Expense Survey, and offered some key takeaways in an Executive Summary:

  • Operating expenses increased by 2.1 percent, the slowest rate of growth since 2013.
  • Net Operating Income (NOI) grew by 5.8 percent, up 2 percentage points over 2016, impressive amid slowing rent growth.
  • Increases in payroll expenses were in line with wage growth in other private sector industries, averaging 2.4 percent.
  • The number of market-rent garden-style units per full-time employee increased for the third consecutive year to 44.3. The challenges of an ongoing labor shortage within the industry likely kept some communities understaffed throughout the year. Increased pressures on wages can be expected in 2018 and should be evident in next year’s survey results.
  • Once again, property taxes were responsible for the largest increase in expenses, up 5.3 percent year-over-year. The average property tax bill was $1,833 per unit and represented one-third of expenses. Fifteen years ago, property taxes comprised less than one-quarter of operating outlays. Contesting assessed values has become commonplace for many owners feeling the squeeze from skyrocketing taxes.

Click here to read the full Executive Summary and click here to order a copy of the survey results, which provide breakdowns for each metro market.

Multifamily Construction Input Costs Are Up. Way Up.

The National Apartment Association will be publishing an in-depth article and blog post on rising construction input costs, but in the meantime, they offered us some basic data comparing the Producer Price Index (not seasonally adjusted) in May 2018 vs. May 2017:

Source: Bureau of Labor Statistics

The three steepest increases were:

Lumber & Plywood – 13.9%
Copper & Brass Mill Shapes – 13.8%
Steel Mill Products – 10.5%

As we said, NAA will be digging into this in more detail soon so make sure you check their Research Page/Blog and the August issue of Units Magazine to see it.

NAA’s Approach to Finding Solutions to Housing Crunch Garners Attention

Over the past couple of years, the National Apartment Association has increasingly focused on conducting research that helps inform the organization’s approach to engaging governments at the federal, state and local level. That work has gained some positive attention in the real estate development world, as evidenced by this article in BuilderOnline.com:

Not for nothing, the National Multifamily Housing Council and National Apartment Association have recognized–via research the two organizations conducted with Hoyt Advisory Services–that developers will need to add 324,000 units annually for the next 12 years to make up for lost time and keep up with new household formation.

The NAA and NMHC have gone so far as to develop a Barriers to Apartment Construction Index, which scores 50 metro areas on a scale of difficulty posed by regulatory and space constraints. A score of 19.5 ranks as the most difficult market to add apartments, Honolulu.

It seems evident that multifamily developers have jumped a step ahead of their single-family for-sale siblings, both in investing in research that begins to build evidence around the scope of the shortfall and developing scenarios for getting beyond the current impasse, which is a lose-lose-lose proposition…

One way that it appears multifamily players seem to recognize as a solution–better on the whole than single-family players–involves a form of collaboration that’s been around for as long as people have been forming communities as a way to live and conduct business: public-private partnership.

Jobs, Jobs, Jobs

It would surprise no one to learn that there’s a tight job market in the rental housing world, but you might be surprised at exactly how many open positions there are in the industry. According to new research from the National Apartment Association, there are about 4,000 open positions nationwide. The largest number of open positions can be found in the “Property Management” category, and not far behind that is the “Maintenance Category.”

Source: National Apartment Association

As you can see the largest number of openings by job title is for Maintenance Technicians – shocking right? – and the researchers were kind enough to dig a little deeper into that position’s data:

Source: National Apartment Association

All of this data is derived from a new monthly NAAEI product called Apartment Jobs Snapshot. Here’s more info about it from NAA’s site:

The Apartment Jobs Snapshot is a new monthly product from NAAEI highlighting labor force trends in the rental housing industry. It examines the total job posting trends by position, category and geography, as well as providing fresh and detailed updates for industry employers. The snapshot will feature enhanced quarterly editions with more expansive data, starting in April 2018.

Newly Minted Tax Bill Likely a Positive for Apartment Industry

According to this article in the Wall Street Journal, the apartment industry fared better than the for-sale housing market with the tax bill just passed by Congress. From the article:

Affordable-housing developers, who had feared that provisions in the House bill would curb production in their industry by up to two-thirds, now predict the impact of the final legislation will be modest. Meanwhile, market-rate rental owners stand to benefit from a slightly lower corporate tax rate and increased demand for rental housing…

Apartment owners say they also could benefit from a tax code that no longer favors owners over renters now that the deduction for mortgage interest is blunted by a higher standard deduction

“John Q. Public has been sold by the home-building industry that it’s better to own than rent because you’re getting subsidized by the government because you have all these deductions,” said Ric Campo, chairman and chief executive of Camden Property Trust, a real-estate investment trust that invests in apartments. “That equation will change.” Mr. Campo estimates his typical tenant will pay about $1,500 less a year in taxes.

Barbara Byrne Denham, a senior economist at real-estate investment-research firm Reis Inc., said the tax bill could be a particular boon for rental markets in suburban areas with high property taxes. The bill caps the amount of state and local taxes that homeowners can deduct at $10,000, which could give some families an incentive to rent longer and enjoy the good schools and other services those areas provide without having to foot a higher tax bill.

Industry representatives also came out in support of the bill. The National Apartment Association (NAA) and National Multifamily Housing Council (NMHC) released the following statement:

“The National Multifamily Housing Council and the National Apartment Association applaud Congress on the passage of tax reform legislation and are pleased that the priorities of the apartment housing industry were largely addressed in the final bill. This legislation will help the multifamily industry meet growing demand to build 4.6 million new units by 2030. As the focus now changes to implementation, NMHC/NAA will continue to analyze and assess the impact of specific provisions on the multifamily industry.”

The Wall Street Journal article also looked at the impact the tax bill is expected to have on affordable housing development. While the changes are still expected to suppress new development slightly, it’s not expected to have the drastic effects that earlier versions of the bill would have created. The full article provides more background on the issue.

Susan Passmore Talks Apartments, Critters and Rasslin’

NaC_logo

This episode of Not a Complex podcast features an interview with Susan Passmore, Executive Vice President of Blue Ridge Companies, past-president and current board member of the Apartment Association of North Carolina, and newly elected Regional Vice President (Region 4) of the National Apartment Association.  We talked about Susan’s new role with NAA, her career (her first job was as a bookkeeper on a property in Asheboro, NC) and her varied personal interests – her lifelong passion for professional wrestling in particular. It’s a great interview and you’ll find yourself learning something while being entertained in the process.

So, sit back and enjoy the show. If you have any questions or comments please feel free to email them to us at info@piedmonttaa.org

Subscribe via: iTunesStitcher

Show Notes:

Phillips Management Group

National Apartment Association

Apartment Association of North Carolina

Susan’s Favorite Wrestlers,  Books to Give Employees and Musical Genre:

World Wrestling Entertainment

Chris Jericho

Ric Flair

Nikita Koloff

Dusty Staub books on leadership

7 Habits of Highly Effective People

Favorite Genre of Music is “Old Pop”, for example Michael Jackson

A Day in the Life of a One-Day Lobbyist

PTAA’s own Mary Gwyn of Apartment Dynamics wrote a piece for the National Apartment Association about her experience at NAA’s Day of Lobbying in March:

It is an honor that we citizens can impact government, lawmaking and regulations in this country. I am always awed when I take advantage of this right and opportunity to express my opinions to our leaders on issues that impact our industry. Beyond our votes, if our voices are not heard, others may sway our leaders in directions we don’t agree with and that are counter to our business and the affordability of housing. A Day of Lobbying each year is very little to give to see that our voices are heard. It’s a great lesson in civics!

One of my Congressional visits was to Rep. Mark Walker (R), a freshman from North Carolina. He came from outside the political circles, serving as a pastor in Greensboro prior to running for Congress.

A group of eight of us gathered to meet with him, three of whom were first-time lobbyists. We filled the hall while we let his staff know we were there for our appointment, but there was some confusion – no appointment on the calendar. And although we had emails from his office, there was no need to pull them up. In fact, they quickly found a way to “squeeze” us in before the Congressman’s next appointment.

We were taken from his small but sunny outer office, to a rich wood-paneled room. The walls were covered with pictures and sayings that demonstrated his beliefs and interests. He crowded all eight of us and his Legislative Assistant into the room. Three of us were from his district, and introduced ourselves. His eyes were intent on each of us as we spoke.

You really should read the whole thing because it eloquently describes why participating in government relations activities like the Day of Lobbying is so important, and how it can enrich your career.

It’s a Two-fer: Diamond Awards and National Apartment Housing Day

Tonight is PTAA’s annual Diamond Awards banquet, which is a combination of the Oscar, Emmy and Tony awards for the local apartment industry. The event is SOLD OUT which means we’ll have 530 people celebrating the best and the brightest the apartment industry has to offer.

Today is also National Apartment Housing Day and by highlighting it at tonight’s Diamond Awards PTAA will be joining the 170 apartment associations affiliated with the National Apartment Association (NAA) to promote the tremendous contribution that the apartment industry makes in housing Americans. Here’s how the National Apartment Association describes it:

National Apartment Housing Day is the apartment housing industry’s opportunity to showcase its significant impact in communities across America by:

  • Contributing to the nation’s economic strength. Apartments and their residents contribute $1.3 trillion to the economy and support 12.3 million jobs.
  • Growing career opportunities. Today, 469,000 apartment professionals work in fields such as property management, leasing and maintenance. Beyond supporting today’s 20 million apartment households, new career opportunities await – by one estimate, 4.4 million new renter households will be formed within the next decade.
  • Giving back to communities. In 2016, the industry infused $158 million in philanthropic and charitable contributions into communities across the nation.

“Today we welcome America home,” says National Apartment Association President & CEO Robert Pinnegar, CAE. “Apartments offer Americans flexibility and choice, but current demand for apartments outstrips supply. A continued supply of affordable housing requires supportive legislation and regulations that make it easier to construct and rehabilitate apartments. That, more than anything else, will help keep rents reasonable for Americans.”

NAA Report Explores Effects of Value Added Amenities

A report recently released by the National Apartment Association explores which amenities are most widely offered at both the community-wide and unit level and the impact those amenities have on rent and occupancy rates. Titled Adding Value in the Age of Amenities Wars the report details which amenities are most commonly offered and explores which are most effective in raising average rents.

Here’s a sample of some of the findings:

  • Top community-wide amenity: Fitness Centers
  • Top unit-level amenity: Washer/Dryer in unit
  • Percent of residents willing to pay a premium ($75) for hardwood floors: 49%
  • Percent of residents willing to pay a premium ($30) for granite countertops: 39%
  • Percent of residents willing to pay a premium for fitness classes: 46%

Finally, towards the end of the report is a graphic showing the impact of renovations on occupancy, broken down by apartment class:

Class A – Occupancy increased from 92.0% to 92.8%
Class B – Occupancy increased from 92.7% to 94.3%
Class C – Occupancy increased from 88.6% to 91.0%

You can read the entire report here.

 

“Construction Costs Are Killing Us”

Paula Munger, the National Apartment Association’s Director of Industry Research & Analysis, shares some insights on rising construction costs she’s gleaned from apartment developers around the country. The cost of labor is particularly acute:

According to a recent survey of nearly 1,500 contractors by the Associated General Contractors of America, 69% reported difficulty filling hourly craft positions, particularly carpenters, electricians, roofers and plumbers. Not surprisingly, 48% of survey respondents reported increasing base pay in order to attract these skilled workers. Over half of the contractors do not expect any relief over the next 12 months, so if classic supply and demand fundamentals play out as they should, expect labor costs in the construction industry to continue to rise. Of course, that all depends on which market you’re in…

So let’s get local, and take a closer look at labor costs, specifically median hourly wages for construction workers in some major metropolitan areas as of 2015 (the most recent data available). Seventy percent of the top 10 apartment markets, based on number of units, exhibited wage premiums in construction compared to other industries. In Chicago, a construction worker can earn almost double the overall average earning rate, with New York and Los Angeles about a third more.

Source: NAA Aptly Blog
Source: NAA Aptly Blog

Read her full write-up here.