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  • M A R K E T V I E W P O I N T

    SEPTEMBER 2015

    M A R K E T S N A P S H O T :Affordable Rental Housing in the Twin Cities

    I N T H I S I S S U E :

    Production Summary 2010- 2015 1

    Development Patterns 2-4

    Metro Area Production Map 5-6

    Case Studies 7

    Affordable Housing by the Numbers 8

    Issues for Developing and Financing Affordable Housing 9

    Dougherty Mortgage and Affordable Housing Finance 10

    THE IMPORTANCE OF AFFORDABLEHOUSING TO OUR COMMUNITYAffordable housing is an essential component in the fullspectrum of housing options, underpinning a vibrantsociety and a strong economy. A large number of TwinCities families, individuals, seniors and workinghouseholds rely on quality, affordable housing that iswell-located near jobs, schools, amenities, personalservices and daily conveniences. Without good-qualityaffordable housing in a wide variety of locations, theTwin Cities region cannot maximize opportunities for all of its residents. Continued development andpreservation of affordable housing will allow the TwinCities to tap its full social and economic potential,benefitting everyone.

    Dougherty Mortgage proudly holds a leading role inaffordable housing lending in the Twin Cities, and acrossthe country. We are pleased to provide this report to helpeducate our clients and business partners on the keyfacts and issues surrounding affordable housing in theTwin Cities.

    Disclaimer: This report assesses the seven-county Twin Cities affordablehousing rental market as of September 2015 using data from numeroussources. Some projects with affordability pursuant to tax increment financingand other local sources may have been excluded. The information containedherein has been obtained from sources deemed but not guaranteed to bereliable. Accuracy and completeness are not guaranteed. Past performancedoes not assure future results. Dougherty Mortgage LLC warns against themaking of site-specific development decisions using this reportsinformation without a separate and full review of all available informationby professional analysts.

    ABOUT THIS REPORTAuthor: Thomas G. ONeil, Vice President, Dougherty Mortgage LLC (612-317-2122,toneil@doughertymarkets.com). Design/Layout: Shannon Churchward, ChurchwardDesign. Data Sources: Met Council, Minnesota Housing and other government websites, project web sites, rental clearinghouse web sites, industry reports, accounts fromnewspapers and other media outlets, and leasing personnel, building managers, andother real estate professionals. Photos: All photos are original from Dougherty MortgageLLC except where noted. 2015 Dougherty Mortgage LLC

  • STRENGTHENING PRODUCTION VOLUME SINCE 2010Production of affordable rental housing1 has clearly shown anupward trend throughout the Twin Cities over the past 6 years, risingfrom just 363 units delivered in 2010 to 1,286 units expected tobe delivered this year. A total of 76 projects offering 4,584 affordableunits will have been built from 2010 by the end 2015.

    The pattern of affordable rental housing production in the TwinCities has mirrored that of overall rental housing production, withdeliveries increasing noticeably in recent years. With the easing ofthe housing recession after 2010, developers gained confidence to build affordable units in larger numbers, spurred by low interestrates, readily-available investor equity, and ever-present marketdemand.

    A CONSISTENT SHARE OF OVERALL HOUSING PRODUCTIONAffordable rental housing has made up less than 10% of newsupply in most recent years, typically between 7% and 8% of allnew housing units built in the Twin Cities. The exception wasaffordable housings 14% share in 2011, when the overall weakhousing market produced fewer than 4,600 permits for new units of all types in the Twin Cities.

    The good news is that development of new affordable rentalhousing has kept pace with overall apartment construction duringthe recent boom. In 2015, affordable rental housing should againrepresent a larger piece of the overall housing pie, with affordableunits expected to comprise 14% of all new housing units in the Twin Cities.

    STILL A GREAT NEED FOR MORE UNITSThe Met Council projects that the Twin Cities will need 52,266 newaffordable units of all types (owned and rented) between 2011 and 2020 (Thrive MSP 2040). This translates to 5,200+ new unitsneeded each and every year in this decade.

    In rough terms, housing planners have estimated that about 80% of new affordable housing should be in the form of rental units, or approximately 4,200 rental units needed each year. Production over the past six years has fallen well short of this goal, with a2,900-unit shortfall in even in the strongest year (2015; 1,286units to be delivered). Clearly, many more affordable rental unitsneed to be built in the Twin Cities for years to come.

    1 For this report, affordable rental housing includes new, permanent units with rent and income restrictions, built by private or public entities for general-occupancy/families, seniors and targeted populations (e.g. long-term homeless, homeless youth, persons with mental health or chemical dependency issues,persons with disabilities and other supportive housing populations). This report does not tally shelter beds or other short-term accommodations, housingpreservation units, market-rate units that are rented at affordable levels or market-rate units occupied with tenants holding rent vouchers.

    NEW AFFORDABLE RENTAL UNITSTWIN CITIES | 2010 2015

    PRODUCTION SHORTFALL:AFFORDABLE RENTAL UNITS

    TWIN CITIES | 2010 2015

    NEW AFFORDABLE RENTAL UNITSAS A PERCENTAGE OF ALL NEW HOUSING

    TWIN CITIES | 2010 2015

    1 | MARKET SNAPSHOT: AFFORDABLE RENTAL HOUSING IN THE TWIN CITIES

    2010 2011 2012 2013 2014 2015 (est)

    Sources: Dougherty Mortgage LLC, State of the Cities Data System (HUD)

    7%

    14%

    7% 7%8%

    14%

    2010 2011 2012 2013 2014 2015 (est)

    Source: Dougherty Mortgage LLC

    363

    661778

    689

    807

    1,286

    2010 2011 2012 2013 2014 2015 (est)

    Sources: Dougherty Mortgage LLC, Met Council

    363

    661778

    689807

    1,286

    Estimated 4,200 Units Annual Need

    SHORTFALL

    PRODUCTION SUMMARY

  • WHERE HAVE UNITS BEEN BUILT, AND WHO IS BEING SERVED?

    Strength in the Urban Core Minneapolis neighborhoods have seen far more new affordableunits than any other Twin Cities submarket since 2010. About27% of all new affordable units (1,268) have been built in 22 neighborhood projects throughout the City. This submarket is just one of two areas (first-ring suburbs being the other)offering affordable units for all three main needs groups:general-occupancy tenants, seniors and targeted populations.

    Downtown Minneapolis, the southeast suburbs and St. Paulneighborhoods each added between 550 and 650 newaffordable units over the past 6 years, while the northwestsuburbs and first-ring suburbs each produced roughly 430 to440 new units. The pattern of higher amounts of affordableunits in several central urban areas reflects a number ofstrengths in the higher-density urban core: greater serviceofferings, more transit options, closer proximity to jobs and a greater acceptance of affordable housing development in general. Also, many of the leading affordable housingdevelopers, especially non-profits, are based in the central cities and they tend to develop sites in their own backyard.

    Redevelopment in Minneapolis, St. Paul and the first-ringsuburbs has also fueled affordable housing construction inmixed-income buildings and senior developments.

    General-occupancy UnitsGeneral-occupancy units comprised about 61% of all newaffordable rental production in the past 6 years, with all parts ofthe Twin Cities seeing projects of this type. Forty-seven general-occupancy projects delivered 2,802 units between 2010 and2015, roughly 470 units per year on average. Developers builtprojects in a variety of settings, including both downtowns,throughout central-city neighborhoods, in first-ring suburbs andon typical suburban sites farther out, including such far-flunglocales as Ramsey and Farmington.

    While about two-thirds of all general-occupancy units weredelivered in low- and mid-rise buildings, warehouse and historicconversions in Minneapolis and St. Paul contributed 675 newunits (8 projects) and townhome projects added 270 new units(8 projects). The Dakota County CDA built all but one of the newaffordable townhome developments in the Twin Cities since 2010.

    Senior UnitsMore affordable rental units for seniors were added in thesoutheast suburbs than in any other submarket from 2010-2015. Five projects from the Dakota County CDA contributed all312 senior units in this submarket. The second-highestaffordable senior housing production occurred in the first-ringsuburbs (263 units in three projects) and the Minneapolis

    neighborhoods (261 units in five projects). The northeast,northwest and southwest suburbs and St. Paul neighborhoodsproduced between 50 and 130 units each. Neither downtownhas added affordable senior rental units over the past 6 years.

    Units for Targeted PopulationsSites for affordable rental housing for targeted populations aredifficult to secure for a variety of reasons, but proximity tosupportive services is a key factor. Ten buildings with 555permanent units (excluding shelter, temporary and t