Policymakers Must Address Looming Capital Shortage for Rental Housing

WASHINGTON, DC -- Policymakers must recognize the important differences between single-family and multifamily financing and take steps to ensure an adequate supply of capital to the multifamily sector during and after the economic crisis.  That is the conclusion of a new policy paper issued by Harvard University's Joint Center for Housing Studies with support from the National Multi Housing Council. 

The paper, Meeting Multifamily Housing Finance Needs During and After the Credit Crisis, details the growing importance of rental apartments and points to a looming liquidity crisis that could seriously impair the sector, leading to a critical housing shortage if regulators' mandated reductions in the GSEs’ portfolios take place next year as scheduled without a substitute liquidity backstop in place. (Unlike single-family loans, which tend to be sold as securities, the GSEs hold most multifamily loans in their portfolios as investments.) 

"Most of the attention paid to the mortgage crisis has been on how to reform the single-family finance system, but the apartment sector relies on the same federal institutions and agencies—Fannie Mae, Freddie Mac and the Federal Housing Administration—to ensure liquidity," explained Nicolas P. Retsinas, Director of the Harvard Joint Center and a former FHA Commissioner. 

"To avoid unintended adverse consequences in our rental markets, lawmakers need to understand the differences between the two sectors as they undertake long-term GSE reforms, said Retsinas."   Importantly, planning for such reforms needs to take place now so that if the anticipated GSE portfolio reductions take place, a substitute liquidity backstop will already be in place.  Beyond that, it is critical that lawmakers consider the appropriate role for the government in ensuring liquidity to the multifamily sector as they consider how to reform the housing finance system."

"The good news is that the multifamily story is very different from the single-family story," noted Doug Bibby, NMHC President.  "Unlike the single-family market, multifamily loan performance remains quite strong and underwriting standards have remained prudent."

"The single-family housing meltdown confirms that homeownership alone is not sufficient to meet our housing and community needs," said Bibby.  "We need a more balanced housing policy—and that policy needs to begin with ensuring a consistent and abundant capital flow to rental housing."

"Not only do apartments offer housing to a wide range of households," said Bibby, "they can also help us meet critical national goals like reducing greenhouse gasses, growing more sustainably and creating mixed-use, pedestrian-friendly communities.  That is why it is so important that we get this right."

America will increasingly rely on rental apartments to house our citizens as the largest generation of children under the age of 20 in the history of the U.S. reaches adulthood by 2020, the number of seniors begins to skyrocket, mortgage credit standards tighten and demand for affordable housing grows. 

But the poor performance of single-family subprime loans has led to a retrenchment in all real estate lending, and this threatens the ability of the multifamily sector to meet this need.

Without sufficient capital, even cash-flow positive projects will not be able to refinance their maturing mortgages and will be pushed toward default.  The liquidity crisis also threatens to bring a halt to much-needed new apartment construction, particularly affordable housing, and will prevent property owners from tapping into their equity to keep their properties from falling into disrepair. 

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Based in Washington, DC, NMHC is a national association representing the interests of the larger and most prominent apartment firms in the U.S.  NMHC’s members are the principal officers of firms engaged in all aspects of the apartment industry, including ownership, development, management and financing.  NMHC advocates on behalf of rental housing, conducts apartment-related research, encourages the exchange of strategic business information, and promotes the desirability of apartment living. 

Nearly one-third of Americans rent their housing, and over 14 percent live in a rental apartment.  For more information, contact NMHC at 202/974-2300, e-mail the Council at info@nmhc.org, or visit NMHC's web site at www.nmhc.org.

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