Labor Shortage a Challenge for Apartment Developers

Nationwide there is still ample demand for new apartments, but a shortage in construction labor is limiting the number of units being delivered. From an article on Realtor.com:

Rising construction costs and a tight labor market are slowing a nearly decade long apartment boom, likely easing a burgeoning glut at the top end of the market that has been forming across the U.S.

Multifamily building permits have fallen each month since March, according to federal data. That type of slowdown suggests there should be less new apartment construction over the next two years, the typical time it takes to build an apartment property of any scale…

“The demand is there,” said Paula Munger, the National Apartment Association’s director of industry research and analysis, referring to tenants. “But labor’s a big deal. It varies by position, but in general that’s what we’re hearing from our members. The actual completions are being more and more delayed for that reason.”

One silver lining from the delayed construction is that it will help reduce some of the inventory at the high end of the market, which has seen the most activity over the last few years and reverse the recent slow down in rent growth.

Turnover Rates Hit Historic Low

Renters are staying put at a historically high rate. In the Executive Summary for their 2018 Income & Expense Survey, the National Apartment Association reported that:

…turnover rates sank to their lowest point on record (data available from 2000) at 46.8 percent. Owners strived to lower turnover costs by focusing on resident retention and increasing renewal rates. The U.S. Census Bureau reported a similar historic low in renter mobility rates in 2017 (21.7 percent) compared to 35.2 percent in 1988.

Source National Apartment Association

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.

Over 19,000 Apartments Needed to Meet Housing Demands in Piedmont Triad

The National Apartment Association (NAA) and National Multifamily Housing Council (NMHC) recently commissioned a study by Hoyt Advisory Services on the housing market in the Piedmont Triad and concluded that almost 19,000 new apartment units will need to be constructed by 2030 in order to meet the region’s housing needs. The study also found that this new construction will require all types of apartments at all price points.

The study found that the Piedmont Triad currently has an estimated 101,020 apartments with residents of all ages and income levels. Of those units, 66% were built before the year 2000, which is a key factor in addressing housing affordability; as new housing units are built they free up older housing stock for workforce housing.

While multiple factors contribute to the need for new apartments, including shifting lifestyle preferences, such as delayed homebuying, as well as the aging American population, a critical component to increased demand for all housing in the Triad is an influx of 25,000 new residents from other parts of the country.

Here’s a link to a PDF version of an overview of the study results for the Triad. Metro MF Overview Piedmont Triad 3-Nov-17

You can also find results at the weareapartments.org website.

 

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

Apartment Industry At The Tax Reform Table, Not On It

Earlier this week the National Apartment Association launched Protect the Lease, a grassroots campaign to inform members of Congress about the importance of the apartment industry as they take up the issue of tax reform. In an interview with Multifamily Executive, NAA President & CEO explained why the initiative is of vital importance for the industry:

“Tax reform is a huge issue for our members and something that they’ve been talking about ever since it first appeared on the horizon,” Pinnegar told Multifamily Executive. “The Tax Reform Act of 1986 really destabilized commercial real estate and severely impacted the apartment industry. It’s one of those things that people who were in the industry and actually had to survive the downturn that was created…it’s a very real issue for them and they’re very concerned on what that will do to the industry.” 

Pinnegar says it’s crucial for the NAA and its members to make their feelings on this subject known early and often. “Tax reform is a variety of issues and once it’s introduced it’s going to change and move over time,” he says. “So we’re going to have to have an ongoing conversation about aspects of how various changes would impact the industry.”

In grassroots fashion, he’s encouraging members to write Letters to the Editor in their local newspaper and host property tours for elected officials in order to detail the potential impacts of tax reform first hand.

According to the NAA, the apartment housing industry provides more than 20 million apartment homes for nearly 39 million Americans and supports jobs for 12.3 million people. Together the apartment industry and its residents annually contribute $1.3 trillion to the U.S. economy.

For more information about the campaign visit www.protectthelease.com. In the coming weeks and months, there will also be opportunities to participate through PTAA so stay tuned!