Apartment Industry Survey Points to Difficulty in Building Moderate-Income Apartments and First Signs of Slowdown

Apr 26, 2001, 01:00 ET from National Multi Housing Council

    WASHINGTON, April 26 /PRNewswire/ -- As the nation's shortage of
 affordable housing worsens, the National Multi Housing Council's (NMHC)
 Quarterly Survey of Apartment Market Conditions (2Q2001) sheds some light on
 why the nation's apartment developers have difficulty meeting the rising
 demand for moderate-income housing.
     According to survey respondents, high land costs are the primary obstacle
 to expanding the supply of moderate-income housing.  These high costs drive
 construction costs beyond the rent levels affordable to such households.
 Almost two-thirds of respondents said that moderate-income apartments only
 make economic sense in locations farther away from downtown urban centers
 and/or employment areas, where land is less expensive.  Another 20 percent
 said that even where moderate-income apartments make economic sense, they are
 all but blocked by zoning restrictions and NIMBY (not-in-my-backyard)
 attitudes.  Only five percent consider moderate-income apartments feasible in
 a wide variety of locations.  (Full survey results follow and are posted at
 http://www.nmhc.org/research/default.html .)
     In another finding, this quarter's survey showed the first signs that the
 general economic slowdown is beginning to affect the apartment industry.
 After tightening for most of last year, apartment market conditions eased a
 bit in the last quarter.  The Market Tightness Index slipped from 47 in
 January to 30.  (A score below 50 means there are more markets in which rents
 increases are slowing and vacancy rates are edging up than markets in which
 conditions are tightening.)
     Even so, sales volume has held up in many markets.  One-fifth of
 respondents noted a greater number of deals than in the prior three months,
 while one-third indicated deal volume was slowing (with the remaining
 respondents reporting no change).  As a result, the Sales Volume Index came in
 at 43, an increase from the year-ago reading of 37.  (A Sales Volume Index
 reading below 50 indicates that, on balance, sales volume is decreasing.)
 The availability and cost of debt financing improved further, though to a
 lesser degree than in the prior quarter.  The Debt Financing Index reading of
 77, while still high, is down from the Index score of 90 in the prior quarter.
     "Although apartment markets have held up better than many parts of the
 economy, the sharp slowdown is clearly having some impact," noted NMHC's Chief
 Economist, Mark Obrinsky.  "In 'supply constrained' markets -- where new
 apartment construction has not been able to keep up with the demand for rental
 units in recent years -- a modest slackening of demand may move them closer to
 equilibrium.  In other markets, we expect to see new construction adjusting
 quickly to any reduction in demand."
     NMHC's Quarterly Survey was conducted via e-mail the week of April 16-23
 and was sent to CEOs and senior apartment firm executives who serve on the
 Council's Board of Directors and Advisory Committee.  Sixty-four members
 responded to this quarter's survey.
 
     Based in Washington, DC, NMHC represents the nation's leading firms
 participating in the apartment industry.  NMHC's members are engaged in all
 aspects of the development and operation of apartment housing, including
 ownership, construction, management, and finance of apartment properties.  For
 more information, contact NMHC at 202/974-2300, e-mail the Council at
 info@nmhc.org, or visit NMHC's Web site at http://www.nmhc.org .
 
 
      NMHC QUARTERLY SURVEY OF APARTMENT MARKET CONDITIONS: MARKET INDEXES
 
                               Market         Sales       Equity        Debt
                             Tightness       Volume      Financing   Financing
                              Index 1        Index 2      Index 3      Index 4
 
     2001 Q2                     30            43           45            77
 
     2001 Q1                     47            49           54            90
 
     2000 Q4                     50            47           43            60
 
     2000 Q3                     57            31           45            51
 
     2000 Q2                     60            37           49            38
 
     2000 Q1                     43            24           39             6
 
     1999 Q4                     49            39           39            17
 
     1999 Q3                     55            44           50            32
 
     The reported index numbers are based on data compiled from quarterly
 surveys of NMHC members.  Survey responses reflect the change, if any, from
 the previous quarter.  The indexes are standard diffusion indexes, so that
 they have leading indicator properties and are convenient summary measures
 showing the prevailing direction and scope of changes.  They are calculated by
 taking one-half the difference between positive (tighter markets, higher sales
 volume, equity financing more available, a better time to borrow) and negative
 (looser markets, lower sales volume, equity financing less available, a worse
 time to borrow) responses and adding 50.  This produces a series bounded by 0
 (if all respondents answered in the negative) and 100 (if all respondents
 answered in the positive).
 
     1 A Market Tightness Index reading above 50 indicates that, on balance,
 apartment markets around the country are getting tighter; a reading below 50
 that market conditions are getting looser; and a reading of 50 indicates
 market conditions are unchanged.
 
     2 A Sales Volume Index reading above 50 indicates that, on balance, sales
 volume around the country is increasing; a reading below 50 that sales volume
 is decreasing; and a reading of 50 indicates market conditions are unchanged.
 
     3 An Equity Financing Index reading above 50 indicates that, on balance,
 equity finance is more available; a reading below 50 that equity finance is
 less available; and a reading of 50 indicates equity finance availability is
 unchanged.
 
     4 A Debt Financing Index reading above 50 indicates that, on balance,
 borrowing conditions are improving; a reading below 50 that borrowing
 conditions are worsening; and a reading of 50 indicates borrowing conditions
 are unchanged.
 
   NMHC QUARTERLY SURVEY OF APARTMENT MARKET CONDITIONS (FIRST QUARTER 2001)
 
     Question #1:  How are apartment market conditions in the local markets
 that you watch?  "Tight" markets are defined as those with low vacancies and
 high rent increases.  Conditions obviously vary greatly from place to place,
 but on balance, apartment market conditions in your markets today are:
 
                                     2nd Quarter     1st Quarter   2nd Quarter
                                        2001            2001           2000
     Tighter than three months ago        6%             19%           29%
     Looser than three months ago        45%             26%            9%
     About unchanged from
       three months ago                  48%             55%           62%
     Don't know or not applicable         0%              0%            0%
 
     Question #2: What about sales of apartment properties in the local markets
 you watch?  Compared to three months ago, the sales volume (number of deals)
 currently is:
 
                                     2nd Quarter     1st Quarter   2nd Quarter
                                        2001            2001           2000
 
     Higher than three months ago        20%             25%           17%
     Lower than three months ago         34%             26%           43%
     About unchanged from
       three months ago                  44%             40%           37%
     Don't know or not applicable         2%              9%            3%
 
 
     Question #3:  What about equity financing for apartment acquisition or
 development?  Considering both price and non-price terms, compared to three
 months ago, equity financing today is:
 
                                     2nd Quarter     1st Quarter   2nd Quarter
                                        2001            2001           2000
 
     More available than
       three months ago                  14%             26%           17%
     Less available than
       three months ago                  23%             18%           18%
     About unchanged from
       three months ago                  50%             43%           61%
     Don't know or not applicable        13%             13%            4%
 
     Question #4: What about the conditions for multifamily mortgage borrowing.
 Considering both interest rates and non-rate terms, compared to three months
 ago:
 
                                     2nd Quarter     1st Quarter   2nd Quarter
                                        2001            2001           2000
 
     Now is a better time to borrow      59%             84%           26%
     Now is a worse time to borrow        5%              4%           50%
     Conditions are about unchanged      33%              8%           22%
     Don't know or not applicable         3%              4%            1%
 
     Question #5: Based on the markets in which you operate, which best
 describes the economic feasibility of building new apartments for moderate-
 income households (defined as those whose incomes do not exceed the median
 income in the area in which they live)?
 
                                                          2nd Quarter 2001
 
     Moderate-income apartments make economic sense
       in a wide variety of locations.                            5%
     Because of high land costs, moderate-income
       apartments make economic sense only in selected
       locations at a distance from downtown urban
       and/or employment centers.                                 63%
     Moderate-income apartments do not generally make
       economic sense due to lack of demand.                      13%
     Moderate-income apartments make economic sense,
       but are largely blocked by zoning regulations
       or other restrictions (including "NIMBY" and
       "no growth" attitudes).                                    20%
 
     Note: The 2Q 2001 survey was conducted April 16-23, 2001, the 1Q 2001
 survey was conducted January 16-22, 2001, and the 2Q 2000 survey was conducted
 April 5-11, 2000.  Sixty-four CEOs and other senior executives of apartment
 related firms nationwide who serve on NMHC's Board of Directors or Advisory
 Committee responded to the 2Q survey and 76 responded in the first quarter.
 
                     MAKE YOUR OPINION COUNT -  Click Here
                http://tbutton.prnewswire.com/prn/11690X22623473
 
 

SOURCE National Multi Housing Council
    WASHINGTON, April 26 /PRNewswire/ -- As the nation's shortage of
 affordable housing worsens, the National Multi Housing Council's (NMHC)
 Quarterly Survey of Apartment Market Conditions (2Q2001) sheds some light on
 why the nation's apartment developers have difficulty meeting the rising
 demand for moderate-income housing.
     According to survey respondents, high land costs are the primary obstacle
 to expanding the supply of moderate-income housing.  These high costs drive
 construction costs beyond the rent levels affordable to such households.
 Almost two-thirds of respondents said that moderate-income apartments only
 make economic sense in locations farther away from downtown urban centers
 and/or employment areas, where land is less expensive.  Another 20 percent
 said that even where moderate-income apartments make economic sense, they are
 all but blocked by zoning restrictions and NIMBY (not-in-my-backyard)
 attitudes.  Only five percent consider moderate-income apartments feasible in
 a wide variety of locations.  (Full survey results follow and are posted at
 http://www.nmhc.org/research/default.html .)
     In another finding, this quarter's survey showed the first signs that the
 general economic slowdown is beginning to affect the apartment industry.
 After tightening for most of last year, apartment market conditions eased a
 bit in the last quarter.  The Market Tightness Index slipped from 47 in
 January to 30.  (A score below 50 means there are more markets in which rents
 increases are slowing and vacancy rates are edging up than markets in which
 conditions are tightening.)
     Even so, sales volume has held up in many markets.  One-fifth of
 respondents noted a greater number of deals than in the prior three months,
 while one-third indicated deal volume was slowing (with the remaining
 respondents reporting no change).  As a result, the Sales Volume Index came in
 at 43, an increase from the year-ago reading of 37.  (A Sales Volume Index
 reading below 50 indicates that, on balance, sales volume is decreasing.)
 The availability and cost of debt financing improved further, though to a
 lesser degree than in the prior quarter.  The Debt Financing Index reading of
 77, while still high, is down from the Index score of 90 in the prior quarter.
     "Although apartment markets have held up better than many parts of the
 economy, the sharp slowdown is clearly having some impact," noted NMHC's Chief
 Economist, Mark Obrinsky.  "In 'supply constrained' markets -- where new
 apartment construction has not been able to keep up with the demand for rental
 units in recent years -- a modest slackening of demand may move them closer to
 equilibrium.  In other markets, we expect to see new construction adjusting
 quickly to any reduction in demand."
     NMHC's Quarterly Survey was conducted via e-mail the week of April 16-23
 and was sent to CEOs and senior apartment firm executives who serve on the
 Council's Board of Directors and Advisory Committee.  Sixty-four members
 responded to this quarter's survey.
 
     Based in Washington, DC, NMHC represents the nation's leading firms
 participating in the apartment industry.  NMHC's members are engaged in all
 aspects of the development and operation of apartment housing, including
 ownership, construction, management, and finance of apartment properties.  For
 more information, contact NMHC at 202/974-2300, e-mail the Council at
 info@nmhc.org, or visit NMHC's Web site at http://www.nmhc.org .
 
 
      NMHC QUARTERLY SURVEY OF APARTMENT MARKET CONDITIONS: MARKET INDEXES
 
                               Market         Sales       Equity        Debt
                             Tightness       Volume      Financing   Financing
                              Index 1        Index 2      Index 3      Index 4
 
     2001 Q2                     30            43           45            77
 
     2001 Q1                     47            49           54            90
 
     2000 Q4                     50            47           43            60
 
     2000 Q3                     57            31           45            51
 
     2000 Q2                     60            37           49            38
 
     2000 Q1                     43            24           39             6
 
     1999 Q4                     49            39           39            17
 
     1999 Q3                     55            44           50            32
 
     The reported index numbers are based on data compiled from quarterly
 surveys of NMHC members.  Survey responses reflect the change, if any, from
 the previous quarter.  The indexes are standard diffusion indexes, so that
 they have leading indicator properties and are convenient summary measures
 showing the prevailing direction and scope of changes.  They are calculated by
 taking one-half the difference between positive (tighter markets, higher sales
 volume, equity financing more available, a better time to borrow) and negative
 (looser markets, lower sales volume, equity financing less available, a worse
 time to borrow) responses and adding 50.  This produces a series bounded by 0
 (if all respondents answered in the negative) and 100 (if all respondents
 answered in the positive).
 
     1 A Market Tightness Index reading above 50 indicates that, on balance,
 apartment markets around the country are getting tighter; a reading below 50
 that market conditions are getting looser; and a reading of 50 indicates
 market conditions are unchanged.
 
     2 A Sales Volume Index reading above 50 indicates that, on balance, sales
 volume around the country is increasing; a reading below 50 that sales volume
 is decreasing; and a reading of 50 indicates market conditions are unchanged.
 
     3 An Equity Financing Index reading above 50 indicates that, on balance,
 equity finance is more available; a reading below 50 that equity finance is
 less available; and a reading of 50 indicates equity finance availability is
 unchanged.
 
     4 A Debt Financing Index reading above 50 indicates that, on balance,
 borrowing conditions are improving; a reading below 50 that borrowing
 conditions are worsening; and a reading of 50 indicates borrowing conditions
 are unchanged.
 
   NMHC QUARTERLY SURVEY OF APARTMENT MARKET CONDITIONS (FIRST QUARTER 2001)
 
     Question #1:  How are apartment market conditions in the local markets
 that you watch?  "Tight" markets are defined as those with low vacancies and
 high rent increases.  Conditions obviously vary greatly from place to place,
 but on balance, apartment market conditions in your markets today are:
 
                                     2nd Quarter     1st Quarter   2nd Quarter
                                        2001            2001           2000
     Tighter than three months ago        6%             19%           29%
     Looser than three months ago        45%             26%            9%
     About unchanged from
       three months ago                  48%             55%           62%
     Don't know or not applicable         0%              0%            0%
 
     Question #2: What about sales of apartment properties in the local markets
 you watch?  Compared to three months ago, the sales volume (number of deals)
 currently is:
 
                                     2nd Quarter     1st Quarter   2nd Quarter
                                        2001            2001           2000
 
     Higher than three months ago        20%             25%           17%
     Lower than three months ago         34%             26%           43%
     About unchanged from
       three months ago                  44%             40%           37%
     Don't know or not applicable         2%              9%            3%
 
 
     Question #3:  What about equity financing for apartment acquisition or
 development?  Considering both price and non-price terms, compared to three
 months ago, equity financing today is:
 
                                     2nd Quarter     1st Quarter   2nd Quarter
                                        2001            2001           2000
 
     More available than
       three months ago                  14%             26%           17%
     Less available than
       three months ago                  23%             18%           18%
     About unchanged from
       three months ago                  50%             43%           61%
     Don't know or not applicable        13%             13%            4%
 
     Question #4: What about the conditions for multifamily mortgage borrowing.
 Considering both interest rates and non-rate terms, compared to three months
 ago:
 
                                     2nd Quarter     1st Quarter   2nd Quarter
                                        2001            2001           2000
 
     Now is a better time to borrow      59%             84%           26%
     Now is a worse time to borrow        5%              4%           50%
     Conditions are about unchanged      33%              8%           22%
     Don't know or not applicable         3%              4%            1%
 
     Question #5: Based on the markets in which you operate, which best
 describes the economic feasibility of building new apartments for moderate-
 income households (defined as those whose incomes do not exceed the median
 income in the area in which they live)?
 
                                                          2nd Quarter 2001
 
     Moderate-income apartments make economic sense
       in a wide variety of locations.                            5%
     Because of high land costs, moderate-income
       apartments make economic sense only in selected
       locations at a distance from downtown urban
       and/or employment centers.                                 63%
     Moderate-income apartments do not generally make
       economic sense due to lack of demand.                      13%
     Moderate-income apartments make economic sense,
       but are largely blocked by zoning regulations
       or other restrictions (including "NIMBY" and
       "no growth" attitudes).                                    20%
 
     Note: The 2Q 2001 survey was conducted April 16-23, 2001, the 1Q 2001
 survey was conducted January 16-22, 2001, and the 2Q 2000 survey was conducted
 April 5-11, 2000.  Sixty-four CEOs and other senior executives of apartment
 related firms nationwide who serve on NMHC's Board of Directors or Advisory
 Committee responded to the 2Q survey and 76 responded in the first quarter.
 
                     MAKE YOUR OPINION COUNT -  Click Here
                http://tbutton.prnewswire.com/prn/11690X22623473
 
 SOURCE  National Multi Housing Council