Fannie Mae Economic Outlook - Citibank · Source: Fannie Mae, 2013 American Housing Survey Based on...

Fannie Mae Economic Outlook

September 16, 2014

Market Insights on Community Development

Tanya ZahalakFannie Mae Multifamily MortgageReal Estate EconomistMultifamily Market Research

Mark DeanCiti Community CapitalManaging Director, National Production Manager

Your Webinar SpeakersYour Webinar HostMark Dean

Citi Community Capital, National Production ManagerMr. Dean has over 27 years of experience providing investment banking and mortgage banking services to real estate developers and corporate sponsors. He specializes in financing multifamily housing using Private Activity Bonds, both enhanced and unenhanced, for public housing authorities, affordable housing developers, and senior housing providers. Mr. Dean works with both for-profit and not-for-profit organizations to finance projects such as affordable housing developments, senior living facilities, and market rate housing.

Mr. Dean has provided acquisition, construction and permanent financing for a wide variety of multifamily housing, senior housing, not-for-profit facilities. In addition to these types of financing Mr. Dean has executed current, advance and taxable refundings of existing bond and real estate debt. His experience includes both public offerings and private placements. His broad range of experience with loan products and debt credit enhancements includes conventional financing vehicles as well as bond insurance, contingent loan agreements, FHA mortgage insurance programs, GNMA MBS, Fannie Mae MBS, letters of credit, and collateral pledges. In addition, Mr. Dean is an expert on the use of low-income housing tax credits to finance multifamily apartments.

Page 2

Your Webinar SpeakersFrom Fannie MaeTanya Zahalak

Real Estate Economist

Tanya Zahalak is a Real Estate Economist at Fannie Mae. She received a B.A. in Applied Math from Washington University in St. Louis and a Masters in Finance from Johns Hopkins University.

She has been involved in housing finance for almost 17 years. For the past five years, her work in Fannie Mae’s Multifamily Economics and Market Research group has involved following multifamily markets at the MSA level with an eye toward determining multifamily market trends and supply/demand imbalances.

Publications include “Despite an Increase in Supply, Fewer Affordable Rentals” and “Is the Development and Design of Multifamily Housing in Line with Recent Trends.”

Page 3

Q&A

Send Questions to [email protected] or

Follow instructions from the Operator - Press *1 for the operator to open your

line.

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5©2015 Fannie Mae. Trademarks of Fannie Mae.

Multifamily Work Force and Affordable Housing Trends

Tanya ZahalakMultifamily Economics and Market Research

Multifamily Mortgage Business

November 2015

6

MULTIFAMILY MORTGAGE BUSINESS

November 2015

The Salina Journal, 2006

7


November 2015

Growth in Median Household Income and Rent Growth (Year over Year)

Source: US Census Bureau per Moody’s Economy.com, REIS Inc.

Growth in median household income has lagged rent growth since the end of the recession.

Multifamily Affordable Housing: Affordability Still a Concern

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

% In

crea

se fr

om P

rior Y

ear

Median Household IncomeRent Growth

8


November 2015

Multifamily Affordable Housing: Affordability Still a ConcernWhile the number of worst case housing needs reported by HUD to Congress declined slightly from 2011 to 2013, it remains 31% higher than prior to the start of the recession in 2007.

5,176

5,992 5,905

7,095

8,475

7,721

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Ren

ters

with

wor

st C

ase

Nee

ds

(1,0

00’s

)

Change In Worst Case Housing Needs 2003-2013

Source: HUD-PD&R tabulations of American Housing Survey data* A Household With a Severe Housing Cost Burden is one which pays more than 50% of income for rent and utilities.

In 2013, 7.7 million renters had worst

case needs. These renters earned less than 50% of Area

Median Income for their locality, lacked housing assistance,

and had either severe rent burdens* or

severely inadequate housing, or both.

9


November 2015

Relative Proportion of Affordable Multifamily Housing by AMI 2009 vs. 2013

Source: Fannie Mae, 2013 American Housing Survey

Based on cumulative affordable units. For instance, if a unit is affordable at Extremely Low Income i.e., affordable to income <= 30% of AMI, it is also affordable at the Very Low Income (<= 50% of AMI) category.

Concurrently, the proportion of multifamily units affordable to lower income renters still remains below 2009 levels.

Multifamily Affordable Housing: Affordability Still a Concern

16.4%

42.8%

62.5%

85.5%

16.0%

37.9%

57.4%

80.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Extremely Low Income Renters Very Low Income Affordable at 60% of AMI Low Income Renters

2009 2013

10


November 2015

Demand for All Types of Rentals Has Grown with Multifamily Renter Households increasing by 1.7 Million in Just Five Years.

Source: American Community Survey, Fannie Mae

Note: Excludes “other” renter category that may include recreational vehicles, rv’s, manufactured housing.

Number of Renter Households (Millions)

4.4

0.5 1.11.9 2.3 2.7

0.4

0.8

1.01.3

1.7

37.0

38.0

39.0

40.0

41.0

42.0

43.0

44.0

2009 2010 2011 2012 2013 2014

Renter Population in 2009 Single Family Renters Added Since 2009 Multifamily Renters Added Since 2009

Multifamily Affordable Housing: Supply/Demand Imbalance

11


November 2015

35% 36% 37% 37% 38% 38% 38% 39% 40% 40% 41% 41% 42% 42% 43% 43%

65% 64% 63% 63% 62% 62% 62% 61% 60% 60% 59% 59% 58% 58% 57% 57%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Class B/C Class A

But the share of conventional affordable class B/C units has been shrinking steadily.

Multifamily Inventory Share by Class Type

Source: Reis, based on multifamily sample tracked.

100% = 8.8 M 9.0 M 9.1 M 9.2 M 9.3 M 9.2 M 9.2 M 9.3 M 9.3 M 9.4 M 9.6 M 9.7 M 9.8 M 9.9 M


10.0 M 10.1 M

12


November 2015

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

LIHTC Properties Class B/C

Source: Integratec Tax Credit Central, REIS

Estimated vacancies for Class B/C “conventional affordable” housing are now approaching the level of vacancies at LIHTC properties, with estimated rent growth rates for Class B/C above the Class A luxury segment.

Vacancy Rates for Conventional Affordable and Subsidized Properties


National Effective Rent Growth by Class

Source: Axiometrics

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

% In

crea

se fr

om P

rior Y

ear

A B C

13


November 2015

As a result, the gap between severely cost-burdened working renter households and homeowners has widened with one in four working renter households spending more than 50% of income on rent and utilities.

Percentage of Working Households with a Severe Housing Cost Burden*

24.5%25.6% 26.4%

25.4% 25.0%

21.2% 21.6% 20.9%

18.6%17.1%

2009 2010 2011 2012 2013Working Renters Working Owners

Source: Housing Landscape 2014 and 2015, Center for Housing Policy* A Household With a Severe Housing Cost Burden is one which pays more than 50% of income for rent and utilities.

Multifamily Affordable Housing: Affordability Deteriorating

14


November 2015

There has been growth in renter households, mostly at higher income levels.


Number of Renter Households by Income Category 2009-2013

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

11,000,000

12,000,000

Extremely LowIncome

(Income<30% of AMI)

Very Low Income(31%-50% of AMI)

Low Income(51%-80% of AMI)

Workforce Housing(81%-120% of AMI)

Not Low Income(>120% of AMI)

2009 2010 2011 2012 2013

Multifamily Affordable Housing: Supply Gap Analysis

15


November 2015

2.36 4.103.41

6.189.75

7.39

19.608.57

10.85

16.12

Units (by Affordability Category) Households (by Income Category)

Cou

nt (M

illion

s)

Not Low Income

Low Income (51% - 80% of AMI)

Very Low Income (31% -50% of AMI)

Extremely Low Income (16% - 30% of AMI)

Deeply Low Income (Income<15% of AMI)

Rental Units and Renters in the U.S., Matched by Affordability and Income Categories, 2013

Source: National Low Income Housing Coalition Housing Spotlight, Volume 5, Issue 1 March 2015

Multifamily Affordable Housing: Supply Gap AnalysisSupply gap is most severe for households at lowest income levels…

16


November 2015

52%

48%

Renter Income > 30% of AMI

Extremely Low Income Renters (Income<30% of AMI)

Units Affordable to Extremely Low Income Renters Broken out By

Renter Type

… due in part to higher income renters occupying units affordable at lower income categories.

32%

25%

44%

Renter Income > 50% of AMIVery Low Income Renters (31% - 50% of AMI)Extremely Low Income Renters (Income < 30% AMI)

Units Affordable to Very Low Income Renters Broken out By

Renter Type


Multifamily Affordable Housing: Supply Gap Analysis

17


November 2015

Cost Burden and Severe Cost Burden Among Renter Households, 2013

95%

88%

78%

48%

10%

49%

90%

75%

35%

9%

1%

27%

Deeply Low Income

Extremely Low Income

Very Low Income

Low Income Not Low Income

All Households

Cost Burdened Severely Cost Burdened

Source: : National Low Income Housing Coalition Housing Spotlight, Volume 5, Issue 1 March 2015Note: A Household With a Housing Cost Burden/Severe Housing Cost Burden is one which pays more than 30%/50% of income for rent and utilities.

Multifamily Affordable Housing: Housing Cost Burden… leading to disproportionate shares of income paid for housing by lower income renter households.

18


November 2015

Note: Hawaii has 188 properties, 0.3% of total subsidized propertiesSource: National Low Income Housing Preservation Database

Subsidized Affordable represents about 25% of all multifamily rental housing with the majority of units located in the most populous states.

Multifamily Subsidized Housing Remains Important

19


November 2015

Subsidy Program Name Number of Projects

Number of Units

LIHTC 32,000 2.2 Million

Project Based Section 8 21,000 1.5 Million

Rural Housing - 515 8,000 395,000

Public Housing 7,000 1.2 Million

HOME 6,000 250,000

FHA Insured (subject to affordability restriction) 5,200 563,000

Section 236 200 42,000

Section 202 2,200 113,000

Rural Housing Service 538 400 23,000

There are a approximately 5 million subsidized affordable units – the vast majority subsidized by LIHTC…

Public and Affordable Housing Research Corporation and the National Low Income Housing Coalition (2015). National Housing Preservation Database. Retrieved from http://www.preservationdatabase.org

Properties most likely have multiple subsidies.


20


November 2015

LIHTC vacancies continue to trend lower in most major metros…

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

New York, NY

Houston, TX

Chicago WI

Minneapolis-MN

Los Angeles, CA

Washington DC

Dallas, TX

National…

Philadelphia, PA

Boston, MA

San Francisco, CA

St. Louis, MO

Seattle, WA

6/30/2013

6/30/2014

Median Vacancy Rate Trends for LIHTC Properties – Select Metros Vacancy Rates (%)

Source: Integratec, Tax Credit Central


21


November 2015

…with solid debt service coverage ratios.

0.60 0.80 1.00 1.20 1.40 1.60 1.80

Los Angeles, CAWashington DC

San Francisco, CANew York, NY

Minneapolis, MNNational DSCR

Houston, TXDallas, TX

Boston, MASt. Louis, MO

Chicago-Naperville-Elgin, ILSeattle, WA

Philadelphia, PADetroit, MI

6/30/20136/30/2014

Debt Service Coverage Ratio

Source: Integratec, Tax Credit Central


22


November 2015

$9.5

$14.1

$15.5

$12.6

$17.3 $17.7

$4

$6

$8

$10

$12

$14

$16

$18

Lend

ing

Volu

me

(in B

illion

s)Multifamily Subsidized Financing Appears Available

Financing for multifamily affordable financing deals appears to be growing. The top 25 lenders financed 85% more volume in 2014 than in 2009.

Source: Affordable Housing Finance (AHF) Magazine.

Notes: Based on AHF Survey of Affordable Lenders. Results reported in January 2015. Includes construction loans for affordable housing and permanent loans for 9 percent low-income housing tax credit projects, Sec. 8 housing, and bond credit enhancements. Construction Lending is not broken out.

Growth in Financing for Subsidized/CRA Eligible Multifamily Properties

23


November 2015

Multifamily Subsidized Financing Appears Available

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Lend

ing

Volu

me

($m

illion

s)

Source: Affordable Housing Finance (AHF) Magazine.

Notes: Based on AHF Survey of Affordable Lenders. Results reported in January. Includes construction loans for affordable housing and permanent loans for 9 percent low-income housing tax credit projects, Sec. 8 housing, and bond credit enhancements.

Top 25 Affordable Lenders financed $17.7 Billion in 2014, up from $17.3 billion in 2013, with Citibank ranking highest in both years.

24


November 2015

1 99.5% of GNMA Loan collateral is FHA credit enhanced loans and 0.5% consists of Rural Loans. Annual volume excludes construction pools and estimated healthcare volume. Subsidized debt assumed to be 50% of remainder after 2009 as FHA 223(f) program included a substantial number of conventional refinances. 2 Includes volume with MF Bond Credit Enhancements.3 Freddie Mac’s volume from press releases.4 Based on data from Multifamily Bond Section of NCSHA Factbooks through 2012. 2013 based on average of prior two year volumes. Includes FHA risk-share under section 542 (C). 5 Based on Affordable Housing Finance Survey including only lenders not associated with FHA, Fannie Mae or Freddie Mac. May include construction/bridge loans in addition to permanent multifamily debt. (Note – virtually all construction debt was halted in 2008/2009 due to unfavorable market conditions.)Represents minimum lending most likely since there are more than 25 lenders who provide financing for subsidized affordable properties.6 Other category includes loans originated by non-profits, mission driven entities, and sold to pension plans or insurance company consortia such as Impact Community Capital. Plugged figure of $0.5 B based on prior proprietary survey.

2009 2010 2011 2012 2013GNMA1 – FHA and Rural $3.4B $3.2B $4.1B $5.6B $6.3B

Fannie Mae MAH 2 $1.2 $0.6 $2.3 $3.8 $2.3

Freddie Mac Targeted Affordable 3 $1.4 $1.5 $1.5 $3.0 $2.5

Housing Finance Agencies Multifamily Lenders 4 $4.2 $2.8 $2.8 $3.7 $3.2

Lender CRA and Multibank Consortia 5 $3.0 $4.0 $4.5 $6.0 $6.5

Other – Non-Profit, Mission Driven, Insurance Consortia, Pension Plans6

$0.5 $0.5 $0.5 $0.5 $0.5

Total $13.7 $12.6 $15.7 $22.6 $21.3

Estimated Multifamily Subsidized Debt Volume (In Billions)

Even taking into account the fact that many MAH lenders layoff credit risk, there appears to be additional lending capacity through bank CRA activity…


25


November 2015

0%

5%

10%

15%

20%

25%

30%

35%

40%

April-May 2014April-May 2015

…and pricing for LIHTC remains strong….

Source: Cohn Reznick Housing Tax Credit Monitor July 2015

Notes: Distribution of lower tier pricing for syndicators participating in Cohn-Reznick survey for April-May for more than 140 properties.


26


November 2015

While about 475,000 new multifamily units are underway…little new supply is being delivered outside of 10 major metros…

Source: CBRE-EA/Dodge Pipeline, July 2015 – Metros with 2,000 or more units underway

Multifamily Apartment Units Underway – Select MetrosExpected Year of Completion

NOTE: Pipeline data is not an actual forecast of activity, it is a monitor of activity reported on to-date. As more projects are planned and tracked, figures in future periods might go up.

-

10

20

30

40

50

60

70

80

Thou

sand

s

Beyond20162015 - Underway2015 - Completed

Supply Gap: You Can’t Build Your Way Out

27


November 2015

Multifamily Development Site Land Prices

…building new market rate units is expensive. Rents must be set at high levels to repay costs…

High Construction Costs + High Land Prices = High Rents

18

19

20

21

22

23

24

25

26

Source: Bureau of Labor Statistics

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

05 06 07 08 09 10 11 12 13 1415

YTD

Note: Prices are per buildable unit. Source: Real Capital Analytics

Average Hourly Earnings of Non-Supervisory Construction Workers


-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Lumber Gypsum Concrete CPI

Materials Year over Year Percent Change

Source: BLS Producer Price Index

28


November 2015

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2008 2009 2010 2011 2012 2013 2014 2015

Market Rate Subsidized

…and subsidized units are usually a small part of new construction.

Source: Dodge Pipeline and Integratec Tax Credit Central compilation of HUD LIHTC database, estimations of units placed in service based on HFA allocations after 2011.

Note: Does not include units in jurisdictions that mandate inclusionary zoning. These may be 5% to 30% of units in newly constructed buildings.

Multifamily Construction Completed 2008 - 2015


29


November 2015

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000Total Units in LIHTC Properties based on 2014 Allocations

Source: Integratec Tax Credit Central

Only 19 states have allocated tax credits in 2014 for at least 1,000 units of new supply….


30


November 2015

30%

65%

5%

Seniors Family Supportive Housing/SRO

Tenancy Type in New Affordable Projects (Based on Units)

Source: Integratec Tax Credit Central

… and 30% of LIHTC allocations were awarded to projects for Seniors


31


November 2015

Thank You!Tanya Zahalak, Senior Economist

Multifamily Economics and Market [email protected]

32


November 2015

Appendix

33


November 2015

Estimated 15M Unit Multifamily Affordable Market Segmented by Unsubsidized Units versus Subsidized Units

Multifamily Affordable Housing: Most Affordable Supply is Unsubsidized

Q&A

Send Questions to [email protected] or

Follow instructions from the Operator - Press *1 for the operator to open your

line.

– This will enter you into the queue to ask a question

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