The Brexit Impact On Multifamily Investment

960x0Great Britain voters decided on June 23 to leave the European Union. The somewhat surprising 52%-48% result — the “remain” side had a narrow lead in the final pre-vote polls — was capped byPrime Minister David Cameron’s announcement that he would resign.

Analysts are mixed about the effect the “Brexit” from the EU will have on the British economy, but the result could make an impact on multifamily investment in the United States, Axiometrics economists say.

International investors have been increasing their holdings in the U.S. over the past several years, as they have gained a better understanding of the American apartment market and appreciation of the sector’s profitability. Before recently, the idea of professionally managed properties of 300 units or more just didn’t translate.

But international investors sunk $16.3 billion into U.S. multifamily in 2015, about 11% of the record $150 billion worth of transactions in the sector, according to Real Capital Analytics (RCA). While Canadian investors provided the lion’s share of that international money ($11 billion), those from Great Britain had the second highest concentration at $2 billion.

The Brexit could decrease the value of British real estate, at least in the short term, as the United Kingdom attempts to first negotiate its way out of the EU, then seeks new trade deals on its own. That could send British speculators looking for someplace safe to spend their investment pounds and shillings, and the United States has one of the most attractive apartment markets in the world, according to Axiometrics’ economists.

Multifamily – comprising apartments, condominiums, student housing, senior housing and other products – is one of the five primary commercial real estate sectors, along with retail, office, industrial and lodging. The sector accounted for 25%-30% exposure of all commercial real estate portfolios in 2015and the first quarter of 2016 – meaning multifamily is bringing in more than its share of investment compared to other sectors.

Meanwhile, the U.S. government made international investment in America easier by easing the tax burden on many of these deals. For example, a non-U.S. investor can now own up to 10% of a REIT before incurring federal taxes – up from 5%. This December 2015 action also exempts certain foreign pension funds from taxes on their U.S. property holdings.

Not only might British investors seek safety in the United States, but patrons from other nations could look to shift some investing from Britain to the U.S., according to Axiometrics economic analysis. London and New York, in that order, are the most popular locations for international investment. A weakened London market could spur more money toward New York, where 32% of 2015 multifamily investment was from outside the U.S., according to RCA.

Investors from the Middle East, who have long favored London, could be ready for a bigger bite of the Big Apple AAPL +0.69% if they see profitability falling in Great Britain.

On the other hand, a post-Brexit British recession – one of the potential scenarios prophesied by economists – could depress U.K. apartment values so much that U.S. investors might see a “buy low” play overseas and spend some investment dollars on London flats.

Cameron bucked many of his Conservative Party patrons by urging his constituents to vote to remain in the EU, a position also held by much of the Labour Party and U.S. President Barack Obama. The rapidly emerging United Kingdom Independence Party (UKIP) was among the most vociferous supporters of the “leave” movement. The political ramifications beyond Cameron’s resignation could be significant.

Had voters followed Cameron’s lead and elected to remain in the EU, international investment in U.S. multifamily would have likely remained on its current trend line: Steadily increasing as market strength and investment conditions improve.


Our office will be closed on Independence Day

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Dear Landlords & Tenants,

Our office will be closed on July 4, 2016 in observance of Independence Day.  We will return to regular business hours on July 5, 2016.  As customary, we will remain available by phone and many of our resources will remain available while the office building is closed.  The outdoor and indoor drop-boxes will be checked daily.  Online portal access is available 24 hours-a-day.

Due to the Federal Holiday, please be aware of the lease terms:  “All rents shall be paid in advance on or before the first day of each month.  Tenant shall pay the late fee if any rental payment is five days or more late.  Tenant understands and agrees postal delays, envelope post-mark dates, bank discrepancies, online payment system errors, weekends or holidays, or any other pretext does not constitute a waiver of late fees.”

We hope that each of you have a safe and happy Fourth of July!


 The Bev Roberts Rentals Family

Why homeownership is at its lowest level in decades

house-housing-decrease-down-chart-graphWith home prices rising and inventory shrinking, the homeownership rate in the U.S. has hit its lowest point in nearly 50 years.

That’s the conclusion of the 2016 State of Housing Report from the Harvard Joint Center for Housing Studies, which found that a lack of first-time homebuyers entering the market is the primary reason for the fall in homeownership.

In the immediate aftermath of the financial crisis, lenders significantly tightened lending standards. At the same time, young people launching careers had difficulty finding jobs, while struggling under student loan debt. Faced with rapidly rising rents, they have had trouble in the intervening years saving up for a down payment.

As a result, homeownership rates for older, wealthier age groups have risen, but those increases have been more than offset by the decline in first-time buyers.

“The good news for the owner-occupied housing market is that these constraints should ease as the mortgage market continues to wrestle with the fallout from the housing crash and adapts to a new regulatory environment,” the authors write. “There are already indications from the Federal Reserve’s Senior Loan Officer Opinion Survey that credit standards may be loosening, particularly for loans backed by the government-sponsored enterprises (GSEs). The upturn in real income growth among younger households should also help.”

Additional headwinds

But these buyers could well face additional headwinds in finding a house that suits their needs and that they can afford. In its most recent market report, Zillow found the prices of entry level homes have been rising faster than other segments of the market.

While prices for homes near the top of the market appear to have stabilized this year, the prices of the least-expensive homes continue to grow by about 8% per year.

It’s really a tale of two markets. Consumers shopping for homes in the top price ranges will find more homes to choose from and will be able to negotiate down from the listing price. But first-time buyers, looking at entry level homes in the lowest price ranges, will find fewer properties for sale and will have to compete against other buyers. That could mean having to pay the asking price, or in the case of multiple offers, even more than the asking price.

“The housing market is much more forgiving for current homeowners looking to move into a bigger, more expensive home,” said Zillow Chief Economist Dr. Svenja Gudell. “These buyers can be a bit more selective, and may even get a good deal.”

But there are still fewer homes for sale in all price categories. The Zillow report shows the smallest decline in inventory among the top third of the housing market. In the bottom third of the market, first-time buyers are facing a nearly 9% drop in available homes.


Fair Chance at Housing Act offers solutions for people with criminal records

prison-crime-criminal-inmateEach year, more than 600,000 people are released from federal and state prisons, while roughly 11 million more cycle through local jails. But despite serving their time, many of these formerly incarcerated individuals find themselves continuously punished for their past mistakes. This is particularly true when they seek housing — a refuge, a place where they can get back on their feet.

Resources, especially affordable housing, are already scarce in many of the communities where formerly incarcerated people return. Indeed, there is currently a shortage of 7.2 million affordable rental units that are available to extremely low income households. People with no interaction with the criminal justice system struggle to find affordable housing. Having a criminal record creates additional barriers that are often insurmountable.

Too frequently, people with criminal records are refused housing or are precluded from rejoining their families, as most plan to do. That’s because housing providers have broad discretion in deciding who is permitted to live in their properties. As a result, formerly incarcerated individuals looking to make the most of their second chance instead find themselves at risk of becoming homeless or recidivating.

The very policies that were designed to protect community safety and well-being may end up doing more harm than good, and they disproportionately impact people of color and people with disabilities who are overrepresented in the U.S. criminal justice system.

Research has shown that formerly incarcerated individuals experience high rates of homelessness, and in some urban areas an estimated 30% to 50% of people on parole have no place to call home. Research has also shown that formerly incarcerated individuals who cannot find stable affordable housing are more likely to recidivate than those who do.

In a recent study, people with criminal records who lived on the street were shown to have been rearrested at double the rate of their counterparts who secured housing. Those lucky enough to find housing are more likely to find employment, reconnect with family, and rebuild their lives.

As it continues to advocate and work towards broad criminal justice reform, the Obama administration has taken important steps to address the issue of housing for the formerly incarcerated. Earlier this year at the National Low Income Housing Coalition’s annual policy forum, U.S. Housing and Urban Development Secretary Julián Castro announced new guidance on how the Fair Housing Act applies to policies that summarily exclude people with criminal records from housing opportunities.

HUD has also partnered with the Department of Justice to help justice-involved youth expunge, seal, or correct their criminal records so that they have better access to housing and jobs.

While we are heartened by these recent actions, we have much more to do to ensure the reentry population has access to stable affordable housing. This is especially true now that Congress is debating how to reform our criminal justice system, which could potentially result in the release of tens of thousands of people—all who will need a place to live, receive supports, and reconnect with their communities.

NLIHC has been working to bring more attention to the housing needs of people with criminal records and is cosponsoring a congressional briefing today, where experts will discuss why housing is so important for the reentry population, the barriers those individuals continue to face, and recent efforts by advocates and public housing authorities to reform policies that have left people with criminal records nowhere to go.

We are also thankful for  Representative Maxine Waters’ (D-CA) bold leadership in introducing the Fair Chance at Housing Act (H.R. 5085), a piece of legislation that would go a long way to ensuring people with criminal records have access to federally-assisted housing, allowing them to reunify with their families, and reducing their risk of becoming homeless or recidivating.

Under the bill, public housing agencies and other owners of federally-assisted housing would have to provide applicants and tenants with an individualized review of the totality of their circumstances before they decide to admit or evict someone based on criminal records.

Currently, owners of federally-assisted housing are not required to consider mitigating circumstances, such as the completion of a drug rehabilitation program, when making a decision that excludes people from housing even though they are no threat to the community and are able to fulfill the terms of a lease.

In addition, the bill would ban “one-strike” policies, provide more support to public housing authorities actively seeking to house justice-involved individuals, and require housing providers to give written notice of their screening policies and the cause for a denial or eviction from housing.

NLIHC strongly supports the Fair Chance at Housing Act and urges its speedy passage. To holistically address this issue, more affordable housing resources are necessary. Ultimately, Congress should direct the costs savings generated from lowering incarceration rates to affordable housing in the communities where formerly incarcerated people return.


Renters Are Earning More, And That Means Landlords Are Too

affordable-rentalsA popular narrative of the U.S. housing market has been that big city prices are locking out young buyers, feeding a cycle in which a growing number of people are forced to rent at ever higher rates as demand overwhelms supply. Throw in the fact that wages haven’t kept pace, and you have a world where a wide swath of Americans can’t save enough to ever buy that first home.

The reality may be a bit more complicated. It’s true that, when combined with a lack of government support for affordable housing, this situation has pushed the number of cash-poor renters to a new high. Some 26% of U.S. renters paid at least half their income to landlords in 2014, up from 20% in 2001, according to the State of the Nation’s Housing report, published this past week by Harvard’s Joint Center for Housing Studies.

On the other hand, the number of homeowners who are severely cost-burdened by mortgage payments (paying 50% or more of their income) or moderately cost-burdened (paying 30% to 50%) actually fell from 2013 to 2014, the JCHS study said. And while the poorest renters are more likely to find themselves in dire straits, data compiled this month by Greg Willett, chief economist at property management software maker RealPage, suggests that market-rate renters are keeping up with those rising rents and are thus able to put some money away for that eventual first purchase.

The median rent-to-income ratio (derived from 4 million apartments tracked by RealPage) has hovered between 22.9% and 23.3% since 2010. While rents increased over that period, so did the median income of market-rate renters, which rose from $44,000 in 2010 to almost $58,000 so far this year. That’s partly because incomes have risen faster for more affluent renters, Willett said, and partly because changing homebuying behavior has kept higher earners in the rental pool longer.

Trends Favor Landlords

Those trends have been good for landlords, and they show that most renters are able to find apartments that fit their budgets. The poor, however, are still bearing the brunt of a tight market: The availability of affordable housing falls at the lower end of the market-rate segment, creating greater affordability challenges in lesser-quality apartments. For the bottom tier of rental units, the median renter is spending more than 30% of his or her income on rent.

Plenty of renters remain cost-burdened, and some of them earn good salaries. In 2014, 399,000 households earning $75,000 or more paid at least 30% of their income in rent — a number that probably skews to hot markets such as New York or San Francisco. About 1.7 million households earning from $45,000 to $75,000 were moderately rent-burdened during the same period.

Farther down the income spectrum, there’s simply not enough supply to meet demand: More than 10 million renter households earned 30% or less of the area median income in 2014, and only about 5 million apartments were cheap enough for those renters to afford. New market-rate construction tends to focus on luxury renters, and lower rents take time to filter down.

Shortfall At The Bottom

More than 1 million new households were created in 2015, compared with 620,000 new homes built, according to new research from the Urban Institute. The shortfall of 430,000 units put more pressure on housing prices, especially at the bottom of the market.

While the number of poor households has risen steadily over the past 30 years, the number of those households getting rental assistance has remained flat. Federal funding for subsidized rental apartments hasn’t increased in 15 years.

“It’s an environment that’s gotten really, really challenging for people at the bottom end of the spectrum,” said Willett. “The story tends to be generalized that’s it’s tough for all rental households. The top-earning groups have not been particularly challenged.”


Four Eyes See More Than Two. Hire a Property Manager!


Summer is in full swing, and it’s blindingly bright; a pair of sunglasses are in order.#SunglassesDay

Housing Supply Not Keeping Up with Demand

house-housing-exteriorHousing construction is still considerably below demand across swaths of the United States, and it’s causing costs and rents to balloon, according to a recent analysis.

On Tuesday, the Urban Institute reported that 2015 saw only 620,000 new housing units, reflecting a shortage of slightly more than 430,000 units nationwide.

As a result, the organization said, home prices and rents are going up despite historically low mortgage-interest rates and a steady economic recovery that continues to drive millennial homebuyers.

“The United States entered the 2008 economic crisis with more housing than was needed, putting downward pressure on price,” Laurie Goodman, co-director of the Urban Institute’s Housing Finance Policy Center, wrote in a blog post.“But construction hasn’t kept up since then, and that surplus has been substantially eliminated.”

To arrive at these numbers, the Urban Institute did the math on single-family, multifamily, and manufactured housing last year. Single-family and multifamily construction accounted for much of the construction.

By that analysis, starts and completions for recent single-family residential homes are below averages observed in decades before the Great Recession.

UI graphThe organization also based the dearth of housing stock on the rapid climb in U.S. household formation, which it predicts is somewhere between 1 million and 1.1 million new households.

“By 2009, housing supply began to slow enough that the market was able to work off the precrisis excess inventory,” Goodman added. “This excess inventory is now substantially gone on the national level.”

Some of this isn’t news. This month the Commerce Department reported that housing starts declined by 0.3 percent from the past month.

“Single-family starts remain badly depressed from a longer-term perspective but have shown more recent strength,” the Wall Street Journal reported Ted Wieseman, a Morgan Stanley economist, as saying.

Goodman offered her own thoughts on what could be done to boost housing construction in areas that need it.

“The lack of affordable stock is already at crisis levels,” she said. “We need federal, state, and local strategies to boost construction in undersupplied areas, provide better affordability for renters, and extend mortgage credit to would-be first-time buyers.”