RubinBrown Apartment Stats 2013

Executive Summary

Industry Update Throughout 2012, the apartment sector continued to build upon its strong momentum gained in 2010 and 2011. Favorable demographics coupled with ongoing economic stress and fallout from the foreclosure crisis have continued to benefit the apartment sector in 2012. Renter demographics remain favorable for the rental housing market, which are maintaining historic high levels of occupancy and rent. Generation Y (those individuals born between 1982 and 1995) continue to show a strong propensity to rent given their economic and social situations. Economically, renting makes sense for Gen Y given the continued slow income growth resulting from the slow economic expansion during the past several years. As a result, many are still financially unable to purchase a home. Socially, individuals move, on average, over 9 times in their life after the age of 18, according to the U.S. Census Bureau, as they pursue life experiences and career opportunities. Gen Y is embracing the freedom renting provides relative to the cost and burden of homeownership. The U.S. homeownership rate continued its recent trend by decreasing another 0.7% from 66.1% in 2011 to 65.4% in 2012. As a result of the economic and social shifts over the past few years, vacancy rates have dipped to a record low of 5.5% nationally during 2012, down from a previous historic low of 6.2% in 2011. The National Association of Realtors expects the vacancy rate to continue to decline to a low of 4.7% in 2013. In response to this increased rental demand, multifamily housing permits, starts and completions have risen significantly again in 2012. According to Real Capital Analytics, apartment construction jumped 67% to $4.9 billion for the first half of 2012 versus the first half of 2011. In terms of units, new construction has increased from a low of 75,000 units in 2009 to just over 300,000 units in 2012. Policy Update As we started 2013, Congress completed passage of the American Taxpayer Relief Act , which side stepped certain elements of the fiscal cliff and included a number of tax extenders important to the affordable housing industry. The largest impact was the 9% housing tax credit (LIHTC) floor extension. This important provision fixed the credit percentage at 9% for new construction and substantial rehabilitation credits and provided the industry a two- year extension for projects receiving 2013 allocations,

essentially guaranteeing the availability of the private equity needed to make the projects financially feasible. The provision, however, did not apply to forward allocations for 2014 or after, even if received in 2013. LIHTC accounts for the majority – approximately 90% - of all affordable rental housing created in the U.S. today and has financed the construction of over 2.5 million affordable homes since its inception in 1986. The affordable housing industry worked very hard to ensure this provision would be included and many thanks go to the strong leadership and support by Senators Maria Cantwell (D-WA) and Olympia Snowe (R-ME) who were able to include the provision in the Senate finance committee bill. The new tax legislation extends the New Markets Tax Credit (NMTC) for two years, permitting a maximum annual amount of qualified equity investments of $3.5 billion each year. The extension is for years 2012 and 2013. In addition, 50% bonus depreciation was extended for certain eligible properties placed in service before 2014. The tax treatment of carried interest is also under debate. While typically associated with financial interests and fund managers, carried interest is a common and important mechanism in the real estate industry to attract investment, allocate business risk, and align the interests of developers and investors. Increasing the tax rate on carried interests for real estate would likely reduce the rate of multifamily construction going forward. Although the bill is very positive, there is still much work to do for the affordable housing, economic development and renewal energy industries as we face a brutal debate on tax reform. Market Trends The biggest question on the horizon is the rate at which the housing market recovers and its impact on the demand for apartments. Housing prices have been trending upward generally across the U.S. for the past six to twelve months. In addition, according to a study published by Freddie Mac, rates on a 30-year fixed- rate mortgage bottomed out at an average of 3.35% in December 2012 but have shot up to 4.46% by August 2013. The National Association of Realtors expects the vacancy rate to increase back to 5.8% by 2015. This is due to skyrocketing supply coupled with an expected eventual shift back to homeownership as renters make the jump to buy homes before interest rates and home prices grow too high.

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