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4
<br />As Vacancy Rates Begin to Climb...
<br />Partial Vacancy Rate )Percent)
<br />11
<br />10
<br />9
<br />3
<br />7
<br />6
<br />5
<br />4
<br />3
<br />2
<br />0
<br />*7r,, nl f t.'.g 1''t 4 C f iWRipK #
<br />y P,. a"'. 'R�!d d✓ 11 Jv ,.�yY i t ., t �Siv G` -4 ai i
<br />e .4'1._ _. ,. .u3. 1+: rAca d r +.ro+s..., w.tai .v.a snr fj
<br />2011 2012 2013 2014 2015 2016 2017
<br />— Class A w Class 3 r Class C S 11 All Rantal Units
<br />Notes: Vacancy rates are calculated as smoothed faur-gnener trailing commas Vacancy rate for all rental
<br />units is from ma lli RealPage data cover promseenally managed apartments in buildings with five or mare
<br />units,
<br />Sources: JCHS tabulations of US Census Bureau, Housing Vacancy Survey IHVSI, and RealPage, Inc.
<br />operating incomes were up 3.8 percent in the third quarter of 2017
<br />from a year earlier. In addition, Real Capital Analytics reports that
<br />real apartment prices climbed 6.3 percent in the second quarter of
<br />this year. Although declining, rates of return on investment remained
<br />relatively strong at 6.2 percent. The pace of investment, however,
<br />appears to be slowing, with the volume of large international and
<br />institutional deals falling in many major apartment markets.
<br />Even so, multifamily financing remains at an all-time high.
<br />According to the Mortgage Bankers Association, the volume of
<br />outstanding multifamily mortgage debt increased by about 20
<br />percent in 2015-2016, rising to nearly $1.2 trillion in early 2017.
<br />Federally backed debt rose by 25 percent, while bank and thrift
<br />lending was up 29 percent. Meanwhile, multifamily loan delin-
<br />quencies are extremely low. Some caution appears to be creeping
<br />into the market, however, with the latest Federal Reserve loan
<br />officer surveys pointing to tightening credit and slowing demand.
<br />SLIGHT EASING OF AFFORDABILITY PRESSURES
<br />With the economy continuing to improve and income growth accel-
<br />erating, the share of renters with cost burdens (paying more than 30
<br />percent of income for housing) fell in 2016 for the fourth time in five
<br />years, to 47 percent (Figure 5). The number of cost -burdened renters
<br />also fell for the second consecutive year, declining from 21.3 million
<br />in 2014 to 20.8 million in 2016, with the number of severely burdened
<br />households (paying more than 50 percent of income for housing) dip-
<br />ping from 11.4 million to 11.0 million. However, this progress comes
<br />... Rent Growth Appears Set for a Steeper Slowdown
<br />Change in Rents (Percent)
<br />7
<br />G
<br />5
<br />4
<br />3
<br />2
<br />0
<br />2011 2612 2013 2014 2615 2016 2017
<br />— Cloa. A — Class E — Class C 1 All Rental Units
<br />Nates', Growth in rents for all units is measured by the CPI for Rent of Primary Residence, including utilities,
<br />RealPage data cover professionally managed apartments In buildings with five or mom units,
<br />Soumen JCHS tabulatlons of Bureau of Labor Statistics, and RealPage, lard.
<br />only after a decade of steep increases. At the average rate of improve-
<br />ment from 2014 to 2016, it would take another 24 years for the num-
<br />ber of cost -burdened renters to return to the 2001 level.
<br />The high incidence of cost burdens reflects the divergent paths of
<br />rental housing costs and household incomes. Between 2001 and 2011,
<br />median rental housing costs rose 5 percent in real terms while median
<br />renter incomes dropped 15 percent. Since 2011, however, real housing
<br />costs have increased 6 percent while income growth has picked up
<br />16 percent (due in part to the increasing share of renters with higher
<br />incomes). But even with the recent turnaround in incomes, the cumu-
<br />lative increase in rental housing costs since 2001 has been far larger.
<br />The rental market thus appears to be settling into a new normal
<br />where nearly half of renter households are cost burdened. An impor-
<br />tant element of this trend is that more middle-income renters are
<br />spending a disproportionate share of income for housing. indeed, the
<br />share of renters earning $30,000-45,000 with cost burdens jumped
<br />from 37 percent in 2001 to 50 percent in 2016, and the share earn-
<br />ing $45,000-75,000 nearly doubled from 12 percent to 23 percent.
<br />In addition, the cost -burdened share of lowest -income households
<br />(earning less than $15,000) was still a stunning 83 percent, with the
<br />vast majority experiencing severe burdens.
<br />Given the fundamental need for shelter, rent is typically the first
<br />bill paid each month. High housing costs erode renters' purchasing
<br />power, leaving little money left over for other essentials such as food,
<br />childcare, and healthcare. In 2016, the median renter in the bottom
<br />
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