Trending: Data Show Continued Growth
in Rental Demand
The Survey of Market Absorption of Apartments (SOMA) indicated an increase in
rentals and sales of newly built apartments during the third quarter of 2012.
The SOMA tracks completions and market absorption rates (units rented or sold
after construction of the property is complete) for multifamily rental and
for-sale housing in 5+ unit properties. The most recent release of absorption
rates covers properties that were completed during the second quarter of 2012.
In terms of unfinished apartments, the three-month absorption rate increased to
70 percent in 2012Q3 after posting a reading of 59 percent during the second
quarter. Over the past four quarters the absorption rate has averaged nearly 63
percent –the best performance since mid-2005. Completions picked up
significantly from the previous quarter, totaling 26,600 units, which was the
highest level of newly-built units since mid-2010.
The condo and co-op sector has seen the 3-month absorption rate trend higher
from the cyclical lows observed between late 2008 to mid-2010. The three-month
absorption rate for units completed during the second quarter of 2012 and sold
during the third quarter inched higher from 65 percent to 66 percent. Over the
past four quarters the absorption rate has averaged nearly 64 percent, marking
the highest reading in five years. Despite the improved absorption rate, the
condo/co-op market continues to struggle as completions reached a new recorded
low as only 1,100 units were completed during the second quarter of 2012. This
represents a 96 percent drop in production compared to the peak. Leaner
inventories should bolster condo and co-op construction activity going forward,
but we expect these units will maintain a diminished share of overall 5+
In addition to these data, SOMA allows one to track the particular types of
multifamily units that are completed in a given quarter. After making up an
average of nearly one-third of completions in the previous four quarters, Low-Income Housing Tax
and other types of affordable housing units accounted for approximately 17
percent of completions during the second quarter.
The SOMA data illustrate the importance of the LIHTC program in terms of
supporting multifamily construction activity, job creation, and providing
affordable housing during the housing market downturn. Two policy changes
helped to ensure that LIHTC-related production did not suffer during 2009 and
First, the LIHTC exchange program, enacted by the 2009 American Recovery and
Reinvestment Act stimulus legislation, ensured equity was available for the
LIHTC program. Second, the 2008 Housing and Economic Recovery Act temporarily
fixed the LIHTC new construction credit at a 9 percent rate (absent the
legislation, the credit rate would be at approximately 7.4 percent today,
resulting in less affordable housing investment funding).
This second item is important to note because the fixed 9 percent rate has
effectively expired and efforts are underway to ensure that it is extended and
prevents a drop-off in LIHTC multifamily construction activity.
View this original post on the NAHB blog, Eye on Housing.