ONE OF THE BUILDING BLOCKS of housing fundamental assumptions—job creation numbers—printed the first Friday of May. Fact is, the figures show clear signs that a three-peat may be shaping up for an American economy that craves a jump start but can't seem to get up a sufficient head of steam to shift into a forward gear.
The concern, of course, is widening sentiment that an economy that fails to retrace its way toward full employment also fails to propel consumer confidence, consumer spending, and, most importantly, new households, the bedrock of economic expectation. Two previous years, 2010 and 2011, burst out of the gates full of economic gusto, only to see momentum peter out amid a maelstrom of disruptive global, domestic, and political events. Will 2012 stack up as another false start for the broader economy? If such a stall should occur, what gives with business and finance assumptions modeled on demand with sustainable job and income growth underpinning them?
Today, such big questions for multifamily housing's financiers trace directly to fundamental drivers such as jobs and income trajectories, but, equally meaningful, to housing preferences. Investment decisions and allocations made now—whether they're from a lender, an institution, an individual, or an apartment developer—time-release not just across a cyclical upturn like the one expected for multifamily over the next five years, but across the next downturn, as well. Our belief that the influx of young adults in their early to mid-20s will produce real demand for as many as eight million new rental households may make us confident in investing in such and such for-rent residential real estate opportunity, but it doesn't necessarily make us obtain the return on that investment that we expect. Confidence and being right, we learn, are two entirely different things.
Maybe we're being overly simplistic, but as both fundamentals and consumer housing preferences remain a question, the narrative for housing investment is about whether the appetite for risk and its rewards of investment yield can outweigh the appetite for safety and its reward of losing less.
In this issue of Apartment Finance Today, senior editor Jerry Ascierto leads the team in offering instances and examples of developers who break through fear's confines by bringing resourcefulness and flexibility to bear—an early-recovery risk trade, if you will. Ascierto's “Mixed Blessings” zeroes in on developers who have re-engineered their original market-rate plans to include income-challenged households as part of the community mix—a strategy that ultimately captured the capital investment necessary to fund the vision and accelerated local permitting and approvals in such a way as to save on construction-cycle expense.
Further, Ascierto's “Separation Anxiety” focuses on the triple jeopardy facing housing finance's twin towers, Fannie Mae and Freddie Mac. The biggest risk is the two governmentsponsored entities' insolvency on the for-sale side of their old book of business. No less daunting for multifamily developers, however, are structural questions about how the secondary markets for residential mortgages, including multifamily, will work to investors' and taxpayers' benefit. Thirdly, the question of political will among elected officials to do the right thing is just that, a question.