The recently enacted U.S. tax reform is poised to benefit the U.S. multifamily investment market, according to a new report from CBRE that analyzes the implications of tax reform on the multifamily sector in the largest 35 U.S. markets. Tax benefits of renting vs. buying a home will increase in 29 of the 35 largest U.S. markets—up from just 15 markets before tax reform.
The $1.3 trillion omnibus spending bill that was passed last week contained the first expansion of the Low Income Housing Tax Credit (LIHTC) program in more than 10 years. The measure increased HUD’s budget by more than 10% and increased the number of LIHTCs that are available by 12.5%, making a significant impact in states such as California and New York where tax credits are a limited resource. The expansion was particularly welcome as it will help offset the effects of the Tax Reform bill that passed last year.
By James Sutton, Regional Director - Central South, Dallas
& Bill O’Quinn, Senior Managing Consultant, Dallas
To say the multi-family market in the Dallas-Fort Worth metropolitan area is performing well would be an understatement. Deliveries were up 14 percent in 2017, vacancies were down 4 percent, rental rates were up nearly 7 percent, and cap rates were down almost 20 basis points. From a property tax standpoint, factoring all of these variables into an income approach to valuation would support higher assessed values at the appraisal district level. While this may be the case, there is another valuation method that needs to be considered before giving up on your property tax appeal.
More than 4,000 new apartments are forecast to hit the Los Angeles market this quarter, according to CoStar, as the first wave of as many as 30,000 in the next three years. Much of the construction is concentrated downtown, where it’s easier to build than in other parts of L.A., and almost all the new apartments will be at the higher end of the market. Signs of rent weakness are emerging as construction approaches peak, and L.A. landlords could be facing similar pains as as their counterparts in Manhattan, where a flood of supply has started to drive down rents.
Amenities continue to be a hot topic in the multi-family industry, with apartment developers competing to attract and retain tenants amidst the growing shift from homeowning to renting. Both millennials and empty nesters are driving demand for apartment space as they continue to forego homeownership. The U.S. homeownership rate was 63.9 percent in the third quarter of this year, similar to the 63.5 percent in the third quarter of 2016. The rate is up 100 basis points from second-quarter 2016 when homeownership reached its lowest level since the Census began tracking it in 1965.
In a recap of the architecture and design panel at the eighth annual InterFace Multifamily Southeast conference, REBusiness Online identified the top amenity trends for apartment developers:
Philadelphia commercial property owners should expect major increases when they receive their property assessments mid-April. The value of the taxable portion of Philadelphia’s 14,000 commercial buildings went up by nearly 40 percent — from $14.4 billion to $19.7 billion — with the reassessments, an increase that will contribute to the expected $118 million in new tax revenue to be split between the city and school district. This is the first full reassessment of commercial properties since the controversial Actual Value Initiative (AVI) in 2014, which uses actual market values as the assessment standard.
At the beginning of the year, researchers warned that hundreds of thousands of new apartments would open in 2016 and drive up the vacancy in the sector. However, average vacancy rates remained low throughout most of this year and the sector’s strength exceeded expectations. Steady job growth numbers and a strong demand helped fill many new units, while construction delays held up a significant number of apartment projects, which will now open next year. Vacancy rates are still anticipated to rise in 2017, when even more new apartments will open than in 2016. However, experts now expect the U.S. vacancy rate to stay at or below 5.0 percent.
Last week, Gov. Andrew Cuomo, the Real Estate Board of New York and city construction unions were finally able to reach an agreement over a bill that would renew New York City's 421-a property tax abatement program, which is now being reviewed in Albany for approval. However, the state legislature will see two more bills regarding the controversial program, which are aimed at enforcing more stringent monitoring and compliance of 421-a projects.
The 421-a program is designed to encourage rental development in New York City by exempting developers from paying city property taxes for decades in exchange for enrolling up to 30% of the apartments in the city's affordable-housing program. The program, which began in 1971, expired last January due to a construction wage agreement not being reached between the Real Estate Board of New York and the Building Construction Trades Council of Greater New York.
In an effort to get friendlier with multifamily building owners, home-sharing platform Airbnb launched its Friendly Building Program this month, which allows multifamily owners and community associations to share profits from resident hosting. During Bisnow’s recent Silicon Valley State of the Market event, Airbnb head of multifamily housing partnerships Jaja Jackson spoke about the opportunities available to building owners. The program offers incentives for owners including $1M of primary property and liability insurance and profit-sharing.
Kansas City has emerged as one the leading apartment markets in the Midwest as employment gains continue to fuel a healthy rental demand. For the last six years, greater Kansas City has experienced annual average employment gains of 1.5 percent, led by the technology sector. Thanks to the installation of Google Fiber, the Kansas City Startup Village is an appealing location to start a business and currently hosts more than 25 Internet startups. The increase in rental demand is also due to millenials flocking to the downtown area. From 2010 to 2015, residents aged 18 to 35 increased 20.5 percent. Employment opportunities are a big contributing factor, but so is the revival of downtown social life.