MFH - FRG Consultants

What’s Red, Blue and Gray All Over?

The population of the United States is rapidly growing older. According to the US Census Bureau, the number of older Americans is projected to more than double from 2010 to 2050. And by 2030, Americans 65 and older are estimated to represent over 20% of the total population. Technological advances and modern medicines are contributing to a greater number of seniors each year.

Question: Is the country prepared to meet the housing needs of this growing demographic?

According to the US Census Bureau, as of July 2022, there were approximately 144 million housing units in the US and of those housing units almost two thirds are owner occupied. Seniors living in lower income households cannot find the means to adequately update their homes to meet their needs as they age. Aging in place is becoming more of a challenge for this demographic group due to high home maintenance cost, interest rates, and a reduced income as seniors rely on social security and/or part-time work.

Several state governments are paying attention and trying to make it easier to age in place. The Institute for Taxation and Economic Policy (ITEP) provides a list of states that offer lowered property tax options, renter’s aid and reverse mortgages through HUD’s Home Equity Conversion Mortgage (HECM) program. For example, Iowa’s legislature recently passed bill SF 619 for the Elderly and Disabled Homeowners. The bill allows income qualified seniors to exempt $3,250 of taxable value of their primary residence for the 2023 tax year and $6,500 for the 2024 tax year. Similarly, Connecticut’s state law offers an income-based property tax credit up to $1,000 for single homeowners.

Without more awareness and action to proactively push funding through legislation for affordable senior housing, the “I’ll think about that someday when I get a little older” will be tomorrow and our nation may not be ready.

Where’s the Rent?

According to Moody’s 10 million Americans are behind on their rent. And as of December 2020, according to the National Low Income Housing Coalition renters owe ~$30-70 billion in back rent to landlords.

The Center for Disease Control and Prevention (CDC) extended the federal moratorium on rental evictions due to a tenant’s failure to pay rent through June 30, 2021. This decision is both good and bad.

The eviction moratorium is a vital protective public health measure. The obvious positive impact of the moratorium is that millions of people who are unable to pay their rent can stay in their homes and out of crowded congregate settings, or worse. Research has shown that it is easier to keep someone from becoming homeless than attempting to get them out of homelessness.

However, with each extension of the moratorium there is an increase in the number of landlords struggling to find cash to pay mortgages, taxes, utilities, and maintenance cost. ~10 million individuals own one or two rental units and these individuals account for 22.1 million, or over 50% of the rental housing stock in the U.S. The hardship of no rental payments disproportionately impacts the small landlord. Many of these small landlords are providing housing to the lower income market and the risk of these landlords filing bankruptcy or facing foreclosure could have a significant impact on the availability of affordable rental housing.

The passed COVID Relief (December 2020) and American Rescue Plan (March 2021) set aside a combined $50 billion in funds for state and local agencies to distribute to renters in arrears to pay their rent. And as of now less than half of landlords and a third of tenants are aware of the rental assistance.

The federal government’s goal is to get the funds to renters before the eviction process starts in July. To meet this goal local agencies will need to make both landlords and tenants aware of and encourage the use of the resources. As with most things, success is found in the execution.

Multifamily Housing: What to Expect in 2021

The COVID-19 pandemic is impacting every aspect of our economy. First it was the hospitality and travel industry; then retail; and now it is the real estate sector, more specifically multifamily housing.

According the to the United States Postal Service since the start of the pandemic ~16M people have moved. Some people are moving back in with their parents and others are moving to rural co-living spaces. CoStar data shows that many are moving to the suburbs where rents are holding, while rents are falling in urban and downtown areas.

All of this pandemic moving is having adverse effects on the multifamily housing (MFH) market. Overall multifamily transactions have sharply declined due in part to the difficulty of securing site visits and inspections to complete transactions; lenders pulling back from debt and equity; and a growing uncertainty in the underwriting of future cashflows for income producing properties. In addition, landlords are increasing their payment leniency requests of banks as the federal eviction moratorium significantly reduces their income available to cover loan payments. As a result, financial lenders are starting to place MFH properties into their highest-risk categories.

In addition, we are experiencing an investment shift. MFH investors are moving from the urban core to inner ring suburbs. According to commercial real estate research firm Yardi Matrix since the start of the pandemic apartments sales in midwestern urban areas declined 41% while the decline is not as steep in the suburbs at 26%.

Exploring and Inspecting Properties

To effectively complete a commercial appraisal or multifamily housing rent comparability study we are required to conduct a thorough exterior and interior inspection of subject properties. COVID-19 has presented challenges but has not stopped the FRG team from completing comprehensive site inspections.

In the late Spring, as the country began to slowly re-open our client requests increased. FRG team members often take multi-day trips many times via air travel to complete site inspections. In early June, FRG had a client commitment requiring an inspection of a property on the border of the states of Wisconsin and Michigan. Having previously completed projects in the same area, I knew the fastest route to the site was via a one-hour direct flight from Cleveland to Milwaukee and 2.5-hour car drive north of Mitchell Airport to the site.

As I explored this travel option, I found direct flights were no longer available. As well, my preferred airline only had two flights leaving each day with Milwaukee as the destination. And the available flights had a total travel time of almost six hours. Further, both flights would require an overnight stay in Milwaukee.

I needed to find another travel option.

I considered driving and discovered a one-way trip to the site from Cleveland would be a ten-hour drive. Further, this option would require an overnight hotel stay. At that time, many hotels, especially those in rural areas were struggling with remaining open and offered few amenities. Thus, I did not see a hotel stay as a viable option.

The Struggle to Find Home Sweet Home

As our MAI appraisers complete multifamily housing commercial appraisals and rent comparability studies (RCS) for HUD and private clients, FRG has extensive multifamily housing knowledge. And as a result FRG has a great deal of interest in remedies to the affordable housing shortage.

I can still remember signing my first apartment lease. I was 19 years old and excited to move into my very own 500 sq-ft, one bedroom, one-bathroom home. Well it wasn’t all mine, because I could not afford the apartment, thus I had a roommate. Even with a roommate, this was the first time I felt like a responsible adult.

Unfortunately, many today are struggling to find a place to call home. Nationally, the number of renters has reached historic highs, and as a result it is becoming increasing difficult for many to find safe, quality affordable housing. In fact, according to a Harvard University Housing Study the availability of affordable rental housing is being affected by:

High rental demand and low vacancy rates, which allow landlords to continually increase rental rates
Demand from higher income renters is driving the construction of luxury vs affordable multifamily rental housing

A recent Ohio Housing Finance Agency report that assessed the state’s housing needs noted that lower income Ohioans are struggling to pay for housing as they spend more than 30% of their income on housing. The agency discovered that there are only 43 available and affordable rental units for every 100 extremely low-income renter. And these extremely low-income renter households are typically made up disproportionately with seniors and/or small children.

FRG Wins 5-Year Contract with HUD

Feasibility Research Group (FRG) selected to perform rent comparability and post-rehabilitation studies (RCS) for the Midwest Region.

University Heights, OH (August 12, 2019) — FEASIBILITY RESEARCH GROUP (FRG), a real estate services firm based in Northeast Ohio, has been selected to provide rent comparability studies (RCS) for multifamily housing properties in the Midwest Region. The Midwest Region includes the following states: Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin.

The US Department of Housing and Urban Development requires the completion of rent comparability studies in compliance with the latest version of Chapter 9 of the Section 8 Renewal Policy Guide.

“We are excited to work with the US Department of Housing and Urban Development” said Gregory Williams, MAI and FRG‘s Owner and Managing Director. “We are looking forward to helping to provide safe and affordable housing to communities throughout the Midwest.”