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Early Data Shows LIHTC Properties Less Likely to Decrease Rent in COVID-19 Economy, but Hard to Generalize
The clear story from a broad array of sources is that apartment rents for market-rate properties decreased, some places significantly, in response to the COVID-19 economy. There is a perception that low-income housing tax credit (LIHTC) properties may weather economic storms comparatively better than market-rate properties. Novogradac examined this question in a blog post earlier this year that analyzed occupancy trends of LIHTC properties during the Great Recession.
To better understand the effect of the COVID economy on multifamily properties, both market-rate and LIHTC, Novogradac examined changes in rent from pre-COVID to the present. This analysis is based on Novogradac’s proprietary database from surveys of affordable and market-rate properties. The surveys from which the data originates are for Novogradac’s core market study and appraisal practice. The database was implemented in 2003 and contains more than 100,000 individual properties. For this analysis, Novogradac was able to examine COVID rent trends for approximately 1,118 unique properties nationwide. These properties provide 1,440 data points for this analysis, since some properties cater to a combination of income levels.
The examination revealed that the majority of tenants in units restricted to 50% and 60% of the area median income (AMI)–53% and 52% respectively–experienced no change in rent between the pre-COVID and the current time, while a smaller portion of market-rate units (43%) experienced no change.
Approximately one-third of surveyed market-rate units experienced a rent increase between the pre-COVID and the current time frame. LIHTC units were slightly more likely to experience an increase (38% for 50% AMI and 41% for 60% AMI).
Interestingly, while the above illustrates minor differences between LIHTC and market-rate renters, the difference in those experiencing rent decreases is more significant. Tenants in market-rate units were three times more likely to have experienced a rent decrease during this period than tenants occupying LIHTC units restricted to 50% and 60% of the AMI.
Approximately 7% to 8% of LIHTC renter units surveyed reported rent decreases, while 24% of market-rate units experienced a rent decrease. This is indicative of market forces. As discussed above and in previous posts, the rent advantage experienced by LIHTC properties insulates tax credit properties from economic patterns that are more broadly experienced. Therefore, it is logical that rent for market-rate units would experience greater volatility than the LIHTC properties. This data confirms this as certain.
AMI is the governor of LIHTC annual rent increases for properties with rents at the maximum allowable level. Nationally this increased from $75,500 to $78,500 (3.97%) from 2019 to 2020. Clearly, many LIHTC property managers could have increased rents and chose not to or were restricted by COVID-related rent stabilization regulations. However, remember AMI is backward-looking and reflective of economic changes one, two and three years in the review mirror, not a current indication.
For more information about rent trends see this blog post. Many of the income-eligible households that experienced the income increases indicated by the annual change in AMI are in very different situations today. Many property managers report that owners and managers are foregoing rent increases and offering generous rent relief to tenants in dire economic situations. These actions are reflected in the above survey data. The country is wrestling with the pandemic using different strategies and at different times, that variability is also illustrated in the differing rent trends.
Anyone looking for broad generalizations regarding geographic trends will be disappointed. As with the broader economic recovery, the answer is very localized and very mixed. Novogradac’s sample sizes do not allow for nationwide generalizations, yet the market-to-market variability is clear. This makes understanding local markets an exercise in reading micro trends and examining neighborhood level data. As Novogradac continues to collect data during the COVID economy, this data set will grow. Stay tuned for updates to this analysis as Novogradac hopes to provide more localized information as it become available.