Suggesting that capital markets turmoil is now affecting multifamily apartment owners and developers, the National Association of Home Builders suggested Wednesday morning that apartment developers are finding it difficult to fund future projects, especially those financed with Low Income Housing Tax Credits (LIHTC). “Despite a demand for our product that far exceeds the supply, affordable apartment developers are finding it nearly impossible to assemble the necessary capital to move forward with their projects,” said Robert Greer, president of Marlton, NJ-based Michaels Development Co, whose company has built more than 40,000 LIHTC units over the past 30 years. “Putting together deals that make sense is more difficult now than it has ever been — primarily because the program’s biggest investors of the past — Freddie Mac, Fannie Mae, and large banks — have been sidelined.” Bernard Markstein, NAHB’s staff vice president of forecasting and analysis, said that if frozen credit markets don’t start to thaw, or the job losses continue to accelerate, NAHB could ratchet down its forecast for multifamily housing starts even further. “Right now, we are forecasting 188,000 multifamily starts in 2009,” he said, down more than 100,000 units from 2008. The changes in multifamily financing appear to be recent. According to analysis by the Mortgage Bankers Association of the Federal Reserve Board Flow of Funds data, the level of commercial/multifamily mortgage debt outstanding decreased only slightly by 0.1 percent in the third quarter of 2008, to $3.44 trillion; multifamily mortgage debt outstanding rose $15 billion, or 1.7 percent. Nonetheless, the NAHB contends that emergent tight financing conditions are having a profound impact on market-rate rental communities, which are already under pressure from the excessive inventory of unsold single family homes and condos on the market, as well as dramatic job losses. In spite of the current housing glut, this is a worrisome trend for the multifamily sector, Markstein said, because starts have hovered between 250,000 and 350,000 for more than a decade. “The stability in the starts over such an extended time indicates that it is a sustainable level of development,” he argued. “You can argue that the product mix between condos and rentals got skewed during the housing boom, but you can’t say that there was overbuilding in the multifamily sector.” “Multifamily projects take longer to design and build than single-family homes, so it’s important to have a development pipeline,” noted multifamily builder Steve Lawson, president of Virginia Beach-based The Lawson Companies. “In the next few years, the huge Generation Y age cohort — people now in their early 20s — will begin entering the housing market, and they won’t be able to find apartments.” Interesting food for thought as we think about how the current crisis might shape housing trends over the next decade. Write to Paul Jackson at [email protected].

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