As expected, data from the Survey of Market Absorption of Apartments (SOMA), produced by the Census Bureau and the Department of Housing and Urban Development, suggest a pickup in rentals and sales of newly built apartments. This followed a slight slowing of absorption rates in the first quarter.
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 September report three-month absorption rates during the second quarter of 2012 for properties completed during the first quarter of the year.
For unfinished apartments, the SOMA data confirm a pickup in rental demand. The second quarter three-month absorption rate increased to 61%, after falling to 56% during the first quarter of 2012. Completions also slightly increased for units rented during the first quarter, to 15,700 units.
A similar story played out in the for-sale multifamily sector. The three-month absorption rate for units completed during the first quarter of 2012 and sold during the second quarter increased to 64%, after a 49% absorption rate at the beginning of 2012. Completions of for-sale multifamily hit a new low however, totaling only 1,500 units that were completed at the beginning of 2012 and put on the market during the second quarter.
The SOMA data also allow a tracking of the types of multifamily units completed. Notable strength can be seen for Low-Income Housing Tax Credit (LIHTC) and other subsidized affordable housing units, which constitute 32% of total completions for the quarter.
As such, 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 around one-third of the market over the past year.
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.