Multifamily News Roundup – August 2019

Single Family Activity 

Mortgage rates continue to drop. The lower rates stem from anxieties about the brewing trade war between the United States and China and recent decisions made by the Federal Reserve. A lack of supply in the single-family market may create a floor below which rates will not fall. Beyond supply constraints—the overall number of single-family homes on the market remains low—most homes are inaccessibly priced for first-time buyers, meaning they will miss out on savings they might otherwise see during this period of low rates, which currently sit at their lowest point since 2016. 

 Multifamily Continues to Outperform 

According to the latest estimates from Freddie Mac, multifamily investors have reasons to celebrate. This first half of the year saw strong returns for the industry, and the second half of the year should continue to produce positive results. Companies expanding their rental portfolios this year have significant headwinds. Low rates continue to depress the cost of capital, and high employment rates combined with nationwide housing scarcity means vacancies remain low. For developers and owners wary that record-breaking volume from lenders might mean a glut in the near future, rest easy: demand should more than outpace new supply for the near future.  

Rent Control in New York… 

New York State’s experiment with extreme rent control continues to rile the multifamily market in the nation’s largest city. Blackstone Group has begun to warehouse apartments in their crown jewel, Stuyvesant Town/Peter Cooper Village, so as to avoid renting them below their anticipated value. Major developers and landlords, including JDS and Extell, have publicly considered leaving the city to focus on other markets, such as Florida. Motivated and resolute city residents and politicians have made life difficult for real estate owners in the city, but the backlash from investors and property owners should resolve once the industry adjusts to a frostier relationship with Albany.  

…and in California 

Outside New York, other markets continue to toy with new rent control legislation. Last year, California failed to repeal Costa-Hawkins, a law that limits rent control in the state. The Golden State still faces a housing shortage more acute than most states due to the accompanying high cost of living. Governor Newsom supports a state-wide measure that would limit rent increases to 7% for the next three years. It would also prevent so-called “no–cause” evictions. These new regulations would not apply to single-family homes or new multifamily structures. Such a bill would provide relief for the roughly half of all renters in California who are considered “rent burdened.” Even if that measure fails to pass, individual municipalities have chosen to rely on similar measures. Culver City recently passed a bill capping rent increases at 3%. Sacramento’s city council may pass a similar measure. For owners, the blow of rent control can be softened by diversifying with purchases in neighboring states, or limiting purchases to assets built after 1995, as rent control restrictions do not apply to newer assets.