September 2010

State of the Apartment Market

1

1.6%

3.7%

5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

4Q09 1Q10 2Q10

GD

P %

s

Real GDP Consumption Investments Net Exports Government

2.1% Excl. Growth inPrivate Inventories

1.2% Excl. Growth in Private Inventories

1.0% Excl. Growth in Private Inventories

-15%

-10%

-5%

0%

5%

10%

15%

20%

1970 1975 1980 1985 1990 1995 2000 2005 2010

CPI-Total

CPI-Core

Inflation Not a Threat Yet

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48

Months from Onset of Recession

1948 1953 1957 1960 1970 1973 1980 1981 1990 2001 2007

Jobs Lost in Recessions As Share of Peak2007 excluding temporary Census jobs

0

25

50

75

100

Jul1999

Jan2001

Jul2002

Jan2004

Jul2005

Jan2007

Jul2008

Jan2010

NMHC Market Tightness Index

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1990 1995 2000 2005 2010

0%

1%

2%

3%

4%

5%

6%

Vacant (000s, left scale)

Vacant share (right scale)

Still Too Many Vacant Housing Units

0

5

10

15

20

2000 2002 2004 2006 2008 2010

Single-family

Condo

Housing Inventory Remains High(Months’ Supply of Existing Homes)

Young Adults Living at HomeTrend Suggests Significant Pent-Up Demand

16

17

18

19

20

21

1983 1987 1991 1995 1999 2003 2007

25%

26%

27%

28%

29%

30%

Number (millions)

Share

Will we finally see sweeping change in favor of the density, efficiency, flexibility and affordability of apartment living?

If so, what will drive it?

1. Population growth2. Echo boomers (and Millennials)3. Changing household composition4. Continued immigration5. Environmental concerns 6. Affordability (in the post-crash world)7. Bloom off the rose of homeownership

Why the Long-Term Outlook for U.S. Apartments Should Be Favorable

• The U.S. population is expected to increase 33% by 2030 to 376 million.

• That’s 94 million more people than there were in 2000.

• To accommodate that growth, we need 60 million new housing units.

Population Growth

• 78 million strong, 45 million households.

• If only a small percentage migrate to rental housing, the new demand is tremendous.

Relocation Choices of Seniors

Renter Before Move 20%

Renter After Move 59%

Baby Boomers

Echo Boomers and Millennials

1

2

3

4

5

1933 1943 1953 1963 1973 1983 1993 2003

Millions

A Continuing Stream of Young People

Source: National Center for Health Statistics.

Immigration Set a New Record In the First Decade of the 21st Century

0

2

4

6

8

10

12

1820s 1840s 1860s 1880s 1900s 1920s 1940s 1960s 1980s 2000s

Millions

Changing Household Composition• For 50 years, married couples with children drove

America’s housing industry. But now they account for less than 22% of all households and that number is falling

Household Type 1970 2030

HH with Children 45% 27%

HH without Children 55% 73%

Household Growth, 2000 - 2040

14% 86%

With Children Without Children

47 million7 million

Changing Household Composition

Declining Homeownership Rates

• 2009 Survey: 49% don’t believe homeownership is a realistic wealth-building strategy.

• It costs $200 less per month, on average, to rent than to own.

• A $100 investment in housing in 1985 would be worth $240 today, while that same $100 invested in stocks would be worth $1,116—more than four-and-a-half times as much.

60%

62%

64%

66%

68%

70%

1995 2000 2005 2010 2015

62%

64%

Declining Homeownership Rates

» Source: Harvard University, State of the Nation’s Housing 2009

Future Housing Demand: Shifting Tenure Implications

U.S. Household Growth Projection2008 - 2015

» Source: Prof. Chris Nelson, Univ. of Utah

Supply Trends

Period Starts, Annual Average

Completions, Annual Average

1999 – 2008 297,000 278,000

2009 97,000 259,000

2010 (est.) 85,000 135,000

Multifamily Mortgage Credit Extended,2008Q1 – 2010Q1

-40

-20

0

20

40

60

80

Total Banks LifeCos.

GSEs Ginnie CMBS Other

$ Billions

Source: Federal Reserve Board; NMHC.

0%

20%

40%

60%

80%

100%

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Excess Reserves (shareof total reserves)

Bank Lending Not Back To Normal

0

5

10

15

20

25

30

35

40$ Billions

U.S. Quarterly Apartment Transactions

$0

$20

$40

$60

$80

$100

$120

$140

2001 2003 2005 2007 2009

5%

6%

7%

8%

9%

10%

Price Per UnitCap Rate

(000)

National Apartment Price and Cap Rates

Financial Regulatory Reform: Impact on Commercial Real Estate

• Added regulation and higher costs, which could be passed on to borrowers, but most onerous provisions revised. o Risk Retention Provisionso CMBS Ratings Changeso Costly “End-User” Derivatives Regulations

• More than 200 regulatory rulemaking procedures expected to implement it. (Sarbanes-Oxley had 16!)

Next Up: GSE Reform

• Making the case for multifamily o We weren’t part of the problem – don’t throw the

baby out with the bath water!o The nation is increasingly relying on rental housing,

but private capital cannot meet 100% of the industry’s needs

o A federally backed secondary market is critical to the industry’s health

• The process: a marathon, not a sprint.

Other Legislative Threats

• Carried Interest• National Energy Efficiency Building Code/Green Building

Mandates • Card Check/Unionization Legislation• Tax Law Changes

Conclusion

• Short-Term: Jobs, Jobs, Jobs

• Longer Term: Positive Demographics

1

Douglas M. BibbyPresidentNational Multi Housing Council

Web Site: www.nmhc.org E-Mail: info@nmhc.org Phone: 202/974-2300

Thank You