Data from the Survey of Market Absorption of Apartments (SOMA), produced by the Census Bureau and the Department of Housing and Urban Development, suggest continued improvement for the multifamily sector.
The SOMA tracks completions and market absorption (units rented or sold after construction of the property is complete) for multifamily rental and for-sale housing in 5+ unit properties. Data released in March report three-month absorption rates during the fourth quarter of 2011 for properties completed in the preceding quarter.
For unfinished apartments, the SOMA data indicate a return to strength after a soft patch during the middle of 2011. The fourth quarter three-month absorption rate grew to 67%, the highest rate since early 2005. This occurred despite the fact that completions were also up for this period, totaling 24,500.
Even more strength was evident in the for-sale multifamily sector. The three-month absorption rate for units completed during the third quarter of 2011 and sold during the fourth quarter accelerated to 80%, a level not seen since 2005. However, this high rate of sales is tempered by the fact that total units completed remains a shadow of previous years. At 3,000 units completed during the third quarter, this is a small fraction of the 26,900 for-sale multifamily units completed during the same quarter of 2007.
Nonetheless, the growing absorption rates are a good sign given the increased rate of multifamily 5+ starts, which in turn will lead to higher multifamily completions during 2012 and 2013. The SOMA data are also consistent with NAHB multifamily survey data.
The SOMA data also allow a tracking of the types of multifamily units completed. Notable strength can be seen for both unfurnished apartments and Low-Income Housing Tax Credit (LIHTC) units. Unfurnished apartment third-quarter completions were up 47% year-over-year. LIHTC and other subsidized unit completions were up 22%.
Finally, the SOMA data illustrate the importance of the LIHTC program in terms of supporting multifamily construction activity, job creation, and providing affordable housing during the housing crisis. Two critical policy changes ensured that LIHTC related starts did not collapse during 2009 and 2010, and in fact resulted in the share of multifamily 5+ unit completions due to the LIHTC program growing from less than 20% on average to 25% or more.
First, the LIHTC exchange program, enacted by the 2009 American Recovery and Reinvestment Act stimulus legislation, ensured equity was available for the LIHTC program. Second, the 2008 Housing and Economic Recovery Act temporarily fixed the LIHTC new construction credit at a 9% rate (absent the legislation, the credit rate would be at approximately 7.4% today, resulting in less affordable housing investment funding).
This second item is important to note because the fixed 9% rate has effectively expired and efforts are underway to ensure that it is extended.