construction cost

Multifamily Construction Costs

by 2020 Pandemic2021 MarketHorizon CompaniesMultifamily

Where Do We Go From Here?

Many if not all multifamily developers would agree the most unstable issue in the industry is a shortage of construction materials. Steele, asphalt and lumber to be specific. The shortages have caused development costs to rise to unprecedented levels. It was inevitable. The closing of mills and factories early in the pandemic brought production of materials to a halt. This decreased overall supply while consumer demand rapidly increased.

Consumers were quarantined and anxious. Unsure the direction Covid-19 would go and having millions working from home concerns for comfort became a big issue. Bigger homes became important to families and renovations became a major coping mechanism. Lumber quickly disappeared from shelves, and factories have not been able to keep up with demand since. Construction firms quoted six weeks delivery times earlier in 2021 are now being quoted 18 weeks to arrive.

The closing of factories, mills and high demand have caused a volatile domino effect. The combination of these challenges created the “perfect” storm. The backlog in the production of materials have Builders seeking answers on how to offset these inflated costs. Who will absorb the additional expenses? Will the investors have to take a lower yield? Will the renters have to pay higher rental rates? The National Association of Home Builders did a study and found higher cost of lumber could increase the market value of a unit by $13,000k. Construction costs has always been a huge part of multifamily developments and inflation upwards of 140% is catastrophic to a project.

Pre-pandemic conversations on lumber in the media was far and few, plus boring.  Today the conversation is a hot topic, memes flood social media but it’s definitely a serious matter.  Knowing how to connect with contractors to order materials sooner or even secure the cost of labor will be key for developers. Especially since the labor market is still struggling to fill jobs amidst the significant unemployment but that is another article.  Today, our world is a lot different than 18 months ago and predictions of going back to how it was, is no where in sight.

 

By: Quinn Newton

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Strong Quarter leads to Rent Jump for Multifamily in March

by 2021 MarketAffordable HousingHorizon CompaniesMultifamilyRental

According to Yardi Matrix, the average multifamily rents rose by $6 to $1,407 on a year-over-year (YOY) basis in March. This development lead to multifamily rents having one of the strongest first quarters in a few years, with the 0.6% YOY and 0.8% quarter-over-quarter jump. Further, with rents posting a 0.4% month-over-month growth in March, an increase of 20 basis points over February was achieved.

During this period, 134 markets were surveyed with 114 showing flat or positive YOY rent growth. Additionally, 19 of the top 30 metros had flat or positive YOY rent growth in March.

Many of the western locations showed higher growth followed by markets in the southeast. This includes the Inland Empire (8.3%), Sacramento (7.3%) and Phoenix (6.9%), which posted the largest YOY growth. Tampa (5.0%) and Atlanta (4.7%) also posted strong YOY rent growth, benefiting from strong migration and limited new supply. For instance, completions in Tampa and Atlanta over the last 12 months totaled only 2.3% and 2.5% of inventory, respectively.

Yardi also reported that expensive coastal metros are beginning to bounce back, with New York (-13.6% YOY) and San Jose (-12.0% YOY) bottoming out. In fact, San Jose (0.9%) joined Sacramento (1.0%) in having the highest short-term rent growth in first quarter.

Twenty-six of the top 30 markets had flat or positive month-over-month rent growth in March. It was noted in Yardi that Raleigh, which dropped 0.9%, was an outlier among the strong Southeastern markets. The reason could be that 3.9% of stock has been completed in Raleigh during the last 12 months. Raleigh was second only to Austin, with the second most deliveries over the last 12 months.

While lifestyle rents have been hit the hardest during the pandemic, they rose 0.5% month-over-month during first quarter. Rents in renter-by-necessity apartments, which had been performing better during the pandemic, only increased 0.3%. Twenty-seven of the top 30 metros had flat or positive month-over-month lifestyle rent growth. Half of the top 30 metros also saw positive lifestyle rent growth.

Yardi reported that it expects things will continue to improve with the $50 billion of emergency rental assistance and other support to the housing industry that was included in the most recent federal aid package. “This funding is bound to have a positive effect on occupancy and rent growth throughout 2021,” a Yardi’s analyst’s state.

A recent report from Apartment List echoes Yardi’s sentiment about an improving rental market. In March, Apartment List’s national index jumped by 1.1%, which was its largest monthly increase going back to the beginning of 2017. That doubled historical growth in the month. In the previous three years, March’s year-over-year rent growth was 0.6%.

Recently, Apartment List’s index started growing ahead of seasonal trends. It saw improvement in both pricey coastal markets and smaller cities that have grown popular through the pandemic. The markets that saw the fastest declines in 2020 are starting to experience the most significant jumps in 2021.

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Affordable Housing Market in 2021

by 2020 Pandemic2021 MarketAffordable HousingHorizon CompaniesMultifamily

The affordable housing crisis in the U.S. continued to deepen in 2020 even though there has been tremendous efforts made to change that. Currently, there is a national shortage of more than 7 million affordable homes for the country’s more than 11 million extremely low-income families, according to the National Low-Income Housing Coalition.

Providing access to safe and affordable housing is essential to reducing economic inequalities, yet no state has adequate affordable housing supply for low-income renters, per the NLIHC report.

The simplest solution to America’s housing crisis is delivering more supply. However, beyond obstacles—such as rising land costs, labor shortages and burdensome regulations—that make affordable housing development difficult, there are other, more fundamental issues standing in the way of a more affordable housing market. A major issue is that most of the available homes are in places where there are no jobs that provide opportunities for growth and stability. Instead, workplaces are located in a few areas where housing has become highly unaffordable. Additionally, the available supply doesn’t fit the needs of today’s generation.

Another major challenge for developers is putting together the funding stack and finalizing the closing. The year-end bill submitted last month and passed by congress sets the Low-Income Housing Tax Credit floor at 4 percent, which is set to help developers assemble the funding stacks more easily. These changes would allow for up to 25 percent additional capital to the stacks and help fund budget gaps on current deals, which would allow for larger deals, effectively increasing unit counts, and ultimately increasing the amount of capital that can be allocated by municipalities to projects.

President Joe Biden’s campaign platform called for spending $640 billion on housing programs in the next few years, including establishing a $100 billion Affordable Housing Fund to construct and upgrade affordable housing, increasing funding for the Housing Trust Fund Program by $20 billion and expanding the Low-Income Housing Tax Credit Program by $10 billion. It is still too soon to tell if and how all these plans will materialize but the affordable housing market remain eyes opened.