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AFFORDABLE HOUSING CRISIS AND THE MULTIFAMILY BUBBLE

The affordable housing sector was already experiencing challenges before the Covid-19 pandemic, but it is facing even more of a crisis now. 

 

Many Americans are currently dealing with unemployment and economic hardship due to the effects of Covid-19. When tenants of a household cannot afford to pay rent, housing providers have to forgo their expected rental income which would be used to cover property and operations expenses. This has a negative economic impact on housing providers, homeowners and the surrounding community as a whole. 

 

We are experiencing a housing supply crisis, and the market could take a significant downturn. Government stimulus packages directed at affordable housing have been too little, too late to help tenants and landlords through this historic public health crisis. 

 

The pandemic has accelerated the situation and real estate investors will need to have the right strategies in order to stay profitable during this difficult time. In this article, we’ll look into some of the challenges facing the affordable housing and multifamily sectors in 2021, and how the right information and tools can help you navigate.

AFFORDABLE HOUSING WAS ALREADY UNDERSUPPLIED

Even in the months and years leading up to the Covid-19 pandemic, affordable housing was already undersupplied.

Affordable Housing Stats

  • According to HUD, there are 20,458 total units with affordable housing classified as Low-Income Housing Tax Credit (LIHTC) complexes in Austin, TX, of which 15,737 are identified as “Low Income”.  

  • The total number of multi-family units as of February 2021 according to CoStar is 212,371, which indicates that the total LIHTC is 9.6% of total units.  

  • Vacancy is currently at 10%, rates not seen since the dot-com-bubble crash in 2001. The market didn’t fully recover from that crash until 2004. 

  • According to the US Census, the current Median Household Income in Austin is $71,576 in 2019 dollars and the percentage of people in poverty is 13.2%.  The 2019 national poverty threshold is $13,011 per capita and $20,335 for a family of three.

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Also per HUD, there are 44,644 total units in LIHTC complexes, with 34,241 identified as “Low Income” in Houston, TX.  According to CoStar, the total multifamily units is 497,632, which indicates that the total LIHTC is 9.0% of total units. Vacancy is currently at 10.1% which are rates that were seen after the Great Recession and again in 2017.

 

According to the data, the Median Household Income is $52,338 in 2019 dollars and the percentage of people in poverty is 20.1%

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There is currently a growing demand for affordable housing, and the market is undersupplied to meet that demand.

THE EFFECT OF GOVERNMENT STIMULUS BILLS

In September 2020, the federal government attempted to mitigate the impact of the pandemic by stopping evictions until the end of 2020. The moratorium stated that landlords could not evict tenants who had signed a declaration provided by the Center for Disease Control that stated they could not afford their rent because of Covid-19 and had used all their best efforts to apply for government housing aid. 

 

Then, they passed a major stimulus bill that pushed the moratorium until January 31, 2021. In addition to this, the government provided $25 billion in rental assistance. 

 

On January 21st, President Biden made an executive order that would extend the moratorium until March 31, 2021. Biden’s new $1.9T stimulus bill was supposed to include an extension until September 2021.  However, due to the bill being passed through budget reconciliation to gain approval in a divided Senate, the extension was not included and the moratorium is set to expire at the end of this month. 

 

If this occurs, the impact on the multi-family sector will be significant. This sector has already been experiencing high vacancy rates, low sales volume and a backlog of unpaid rent due to the pandemic.  

 

Luckily, Houston leads the country and Austin is 4th in line in declines in new construction.  Per CoStar, Houston construction is down roughly 11,000 units this quarter compared to the 1st Quarter 2020.  Austin is down roughly 5,500 units over the same period.  Nevertheless, Houston and Austin still rank 7th and 9th in total inventory under construction nationwide.

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RISKS OF FORECLOSURE AND HOMELESSNESS

According to the Center on Budget and Policy Priorities, 14 million Americans living in rental housing are behind on rent per data collected December 9-21.  Roughly 26% of that figure are households with children. 

 

Although $25 billion has been allocated to combat this crisis, the estimated backrent is $100 billion. Even if tenants have started working again, it will be incredibly difficult to repay landlords for months of missed payments. 

 

If landlords aren’t getting paid rent, they won’t be able to pay their mortgages. This could possibly result in a growing wave of foreclosures. As of December 2020, foreclosure rates in Harris County were 1 in every 8,046 and in Houston the rates were even higher at 1 in every 7,663 per RealtyTrac.  In Austin it is 1 in every 16,401. 

 

As foreclosures increase, the rate of homelessness in Texas will grow. Homelessness was already a significant issue in Texas prior to the pandemic, but the problem will continue to become even more severe. 

 

See the below charts for relevant statistics on homelessness in Houston and Austin.

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SALES VOLUME DECLINE

In addition to higher vacancy rates, sales volumes on these types of homes have already declined significantly due to the Covid-19 pandemic. 

 

According to CoStar, Austin and Houston had roughly $1.2B and $1.0B in sales volume in 2020, a 50% and 66% decline from the prior year respectively.  The average price and total units sold was $186,611/unit and 19,200 units in Austin and $129,564/unit and 25,900 units in Houston.  CoStar estimates the total asset values of the multi-family sector in Austin and Houston are $46B and $84.1B respectively.

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When we look at the absorption rate over the past 12 months in Austin and Houston, we can see that it is a fraction of the units currently under construction. This means that vacancy rates will continue to increase over the next year or so. Also, once the moratorium on evictions is lifted at the end of March, the number could skyrocket. 

 

FuseGIS forecasts that multi-family will experience a significant correction in prices and rents once evictions are permitted again.

BE PREPARED WITH THE RIGHT TOOLS AND STRATEGIES

While a housing crisis is heading our way and the market is going to take a significant downtown, it is still possible to make the right moves during this time. The key is to have the right strategies and tools in your pocket. 

 

With the right tools, you can gather the information you need to stay ahead of your competition and make smart moves. For example, FuseGIS allows you to see incredibly useful information about properties quickly and easily, all from one powerful interactive map. 

 

FuseGIS has the entire database of Low-Income Housing Tax Credit (LIHTC) properties for Austin and Houston metro areas. With the click of a mouse, you can see the project name, HUD ID number, total number of units, total number of low-income units, the breakdown of units, the credit allocation year, the construction type and much more.  

 

For example, here’s a view showing Canal Place Apartments in the “Greater Fifth Ward” neighborhood of Houston.

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Plus, with FuseGIS you can also see all of the City of Austin’s affordable housing inventory. Here’s an example of a view showing the brand new 44 East Tower in the Rainey Street District in Downtown Austin.

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With FuseGIS, you’ll have all of this important information at your fingertips, which can reveal opportunities to build and develop more affordable housing. This allows you to know as much as possible, so you can be prepared and informed and better able to adapt to whatever happens next. 


To learn more about FuseGIS, request your free demo here.

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