In this week’s issue, we explore recent regulatory news and its impact on multifamily.
Weekly Insights
We start off with the week’s multifamily insights and then dig deeper into what new regulatory moves mean for multifamily owners and investors. Let’s start with the top multifamily stories from this week.
- Party Like It’s 1987: The 75 bps Fed rate increase was the biggest one-week jump since 1987, expect more — Housing Wire
- And More: Here’s how rising rates affect multifamily investors through increased volatility — MHN
- NOIs: Growth in this key metric is being led by southern and western multifamily markets — Globe St
- Retail Love: Smaller investors are increasingly buying up retail real estate as bigger players stay on the sidelines — WSJ
- Rents Rise: Although growth is decelerating, rents jumped 13.9% YoY in May, increasing $19 to a new all-time high of $1,680 — MHN
- Buyers Market: The multifamily market is much more of a buyers market now than it was 30 days ago — Globe St
- Record Debt: Multifamily mortgage debt increased $37.4 billion (2.1%) to $1.8 trillion from Q4 2021 — WPJ
- SFR Occupancy: Is at its highest level in two decades and will only improve as more consumers are priced out of owning due to rising debt servicing costs — Globe St
Regulatory Moves
Main Takeaway: Regulations are increasing for multifamily owners, requiring improved security, privacy, and utility management. Now is the time to implement new or additional tools and strategies to prepare for the coming heightened regulatory environment.
Story: As multifamily owners and investors we are used to having to adhere to a variety of rules and regulations. But more are coming down the pipe, and it’s important to understand the practical and financial implications of these new requirements on our business operations. Let’s begin with the latter.
The Cost of Regulation
According to a new survey from National Multifamily Housing Council (NMHC), regulation from all levels of government accounts for around 40% of all multifamily development costs.
This reality means that jurisdictions with higher regulatory burdens see less development, further exacerbating the ongoing housing shortage. Removing duplicative and unnecessary regulations is therefore a critical starting point to enable a more balanced housing market and improving supply.
The backdrop of this current reality includes recessionary indicators and rising rates. According to Tony Cantu of MPA, more and more regulations will generally have a negative impact on affordability. “The [above] report comes in the midst of a recessionary environment that has seen interest rates rise, making housing affordability that much more allusive to some. Unable to afford homeownership as property values soar, many would-be first-time homebuyers – chiefly among the millennial generation coming of age for such milestones – have had to delay buying homes. As a result, many are flocking to apartments as they wait for affordability to re-emerge.”
That said, several new regulatory proposals have developers worried that the above costs will only increase. These initiatives include cybersecurity and emissions.
Cybersecurity
According to media reports, a proposed federal law will potentially increase the reporting requirements for the apartment industry on cyber security incidents. Specific requirements are currently unknown, however, the following incidents will likely trigger a reporting requirement, prompting the need for higher and more robust security measures.
- Incidents that cause “substantial loss of confidentiality, integrity, or availability of such information system or network, or a serious impact on the safety and resiliency of operational systems and processes”
- Incidents that cause “disruption of business or industrial operations”
- Incidents that cause “unauthorized access or disruption of business or industrial operations due to loss of service facilitate through, or caused by, a compromise of cloud service provider, managed service provider, or other third-party data hosting provider or by a supply chain compromise
Emissions
In another regulatory move, bans on natural gas hookups are spreading across the country. To date, 77 cities in 10 states have taken regulatory action against natural gas hookups, most in California. New York could be the first state to mandate all-electric new buildings by 2023, with another 20 states having already enacted bans on natural gas bans. The state split between banning the bans and banning natural gas tends to fall along red-blue political lines.
Further, California is moving closer to mandating all new buildings have some solar component to them. What is clear is that all of these regulatory initiatives will require action by multifamily owners and investors, which means additional planning and costs.
Expert Take: “The U.S. is facing a serious housing affordability crisis, in part, because of this overly burdensome regulatory environment…We need to do all we can to lower the cost of housing, and that should start with eliminating duplicative and unnecessary regulations. Those extra costs make many projects financially unviable given that housing providers are already dealing with sky-high land, materials, and labor costs.” — Doug Bibby, NMHC president
Chart: Investors
According to Redfin, investors bought a record 20% of homes sold in U.S. metros in Q1 2022.
