What Multifamily Properties Are Most Expensive to Maintain?

January 13, 2014

Trying to fill the void that was created in 2001 when the Residential Finance Survey (RFS) was discontinued, the US Census Bureau started collecting data on financial, physical and other characteristics of multifamily rental housing properties through its newly designed Rental Housing Finance Survey (RHFS). The first survey took place in 2012. The estimates are still under review by the Census Bureau and HUD. NAHB Economics has been evaluating the new data as well.

Unlike in all other existing housing surveys, the unit of reference in the RHFS is not a housing unit or person but rather a multifamily rental property. Almost two-thirds of these properties have only one building, the rest have two buildings or more. The RHFS separately identifies expenses on property maintenance and repair and capital expenses. The survey also reveals a year the oldest building was constructed and thus allows comparing expenses by property age.

Looking at properties with five or more units, the average spending on maintenance and repair in 2011 was $50,802. However, this average is skewed by a few large properties with much higher expenses. The median spending only reaches $11,559, meaning that half of all properties with 5+ units spend less than that amount. The capital expenses are even more influenced by a few outliers. The 2010-2011 average spending per property exceeds $152,000 but the median only reaches $14,800.

Since spending on maintenance and repair and capital expenses are highly influenced by the size of a property, it is more meaningful to compare these expenses on a per unit basis. Managers of properties with oldest buildings constructed in the 1920-30s report some of the highest annual spending on maintenance and repair per unit, close to $1,300 in 2011. Properties with oldest building constructed in the 1960s and before 1920 register maintenance spending that on average exceed $1,100 per unit. Newer properties with buildings constructed in the 2000s report lowest annual spending on maintenance and repair, around $500 per unit.

Slide1
Comparing annual spending on maintenance and repair with the total rent collected during the same year delivers a slightly different ranking. Properties with the oldest buildings constructed in the 1970s register the highest maintenance and repair spending relative to rent, $229 per $1,000 of rent, on average. Properties with buildings built in the 1920-30s are close second with $220. As before, newer properties built in the 2000s report the lowest maintenance and repair spending relative to rent, $58 per $1,000 of collected rent, on average.

Slide2
It might seem surprising that properties with oldest buildings constructed in the 1940-50s have maintenance expenses lower than properties with newer buildings constructed in the 1960s and 1970s. One possible explanation is that these properties have already undergone major capital renovations thus resulting in lower annual maintenance cost.


Multifamily Rental Properties: Would You Believe 2.25 Million?

March 29, 2013

According to a new survey sponsored by HUD and conducted by Census Bureau, there are 2.25 million multifamily rental properties in the U.S.  You may wonder if we really needed a new survey to tell us this.  The short answer is yes.

RHFS 01

In the decennial Census and virtually all surveys of housing, the government goes to housing units and starts by asking questions of the occupants.  You can count most single-family properties this way, but not multifamily properties that, by definition, have more than one unit per property.

To fill the information gap, NAHB has been a strong advocate of something like the new Rental Housing Finance Survey (RHFS).   One advantage of the RHFS is that it goes to property owners and mangagers, and therefore can collect information about items like upkeep and financing that tenants of rental apartments typically don’t know.  But one of the reasons NAHB has long been advocating a property-level survey like this is simply to get very basic information on counts of buildings and properties.

According to the RHFS, the lion’s share of the 2.25 million multifamily rental properties in the U.S.—1.64 million—consist of a single apartment building.  There are, of course, properties with more than one building—nearly 100,000 properties have 20 or more.  On average, multifamily rental properties turn out to have 2.5 buildings, so the total number of multifamily rental buildings in the U.S. works out to 5.6 million.

RHFS 02

A lot of the 2.25 million properties would be classified as small by most standards.  Over 1.4 million of them are valued by their owners at less than $500,000.  About 850,000 are even valued at less than $200,000.  Although a little over 6 percent of owners failed to report the current market value of their properties to the RHFS, that still leaves more than 2.1 million multifamily properties, and they have a total market value that adds up to roughly $3.8 trillion.

For readers who like more infomation, the Census Bureau has a number of additional statistics in tables posted on its RHFS website.  NAHB is also in the process of analyzing the new multifmaily rental data and will feature it in upcoming blogs.


Single-Family Built-for-Rent Market Share Remains Elevated

January 8, 2013

Despite some recent ups and downs, the share of single-family homes built for rental purposes remains higher than historical norms.

According to data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, the market share of single-family homes built for rent, as measured on a one-year moving average, stands at 5.1% for the third quarter of 2012. This is only slightly lower than the recent peak of 5.35% set at the beginning of 2011, and is considerably higher than the 20-year average of 2.7%.

 

SF built for rent_3q12

In general, with the onset of the Great Recession, the share of built-for-rent homes rose, with a dip in the share during the homebuyer tax credit period.

Despite the elevated market share, the total number of single-family starts built for rental purposes remains fairly low – only 27,000 homes started over the past year, but this total has been increasing with the overall growth for housing starts.

Of course, the built-for-rent share of single-family homes is considerably smaller than the single-family home portion of the rental housing stock, which is 27% according to the 2010 American Community Survey. The reason for this is that as single-family homes age, they are more likely to transition from the owner-occupied to the rental housing stock.


Homeownership Rate Slips during the Third Quarter

October 31, 2012

The Census Bureau reported the seasonally adjusted homeownership rate fell to 65.3% during the third quarter of 2012. In terms of rates across age groups (which are not seasonally adjusted), only those households headed by persons 65 and over registered an increase in the homeownership rate versus the third quarter of 2011. The under 35 and 55-64 householder cohorts saw the largest declines, with each showing a 1.7 percentage point drop-off in the homeownership rate compared to a year ago.

With the homeownership rate dropping to its lowest reading since the first quarter of 1996, it stands to reason that many of the underlying householder age groups have rates hovering at very low levels. Indeed, the homeownership rate among householders under 35 years of age is now at its lowest level on record at 36.3%–a 7.3 percentage point decline from its peak reading back in mid-2004. However, the largest percentage point decline for any particular homeowner cohort was among the 35-44 age group, as the homeownership rate remains 8.7 points lower compared to its cyclical peak.

Recent trends in homeownership rates among the younger age groups are concerning, and could affect the dynamics of homeownership over the long term—particularly if many of these individuals do not transition back from renters to buyers. Homeownership rates among the 45-54 and 55-64 cohorts will have a larger influence on the near-term outlook, since these two age groups are the largest blocks of homeowners. With the pace of job growth expected to pick up modestly going forward, household formations among these two specific cohorts should recover, including those households that were lost as deteriorating financial circumstances and/or some negative economic event (e.g. home foreclosure) forced people into combined living arrangements.

The homeownership rate is only one feature of this Census Bureau report, as it also provides data on trends in the vacant housing stock. The rental vacancy rate held steady at 8.6% during the third quarter, tying last quarter’s mark as the lowest reading on the rental vacancy rate since mid-2002. NAHB’s own Multifamily Vacancy Index revealed continued tightening of apartment supplies during the second quarter of 2012, though at a slightly lower pace. The homeowner vacancy rate declined to 1.9% during the third quarter of 2012, its seventh consecutive quarter-to-quarter decline and lowest level in 7 years.