Multifamily Bond Market Hits New Issuance Record

Published by Peter Lawrence on Wednesday, September 20, 2017 - 12:00am

As reported here last week, multifamily bond issuance reached a record $14 billion in 2016.  As Congress considers tax reform, it’s helpful to place this record issuance in historical context.

Multifamily bond issuance grew fairly steadily between 2000 and 2007, with roughly $3 billion in bonds issued in 2000 and approximately $6.25 billion issued in 2007, according to the Council of Development Finance Agencies (CDFA). However, in 2008 multifamily bond issuance dropped by $4.6 billion, or 78 percent. The financial crisis made investors and lenders significantly more risk averse, reducing their demand for a variety of bond instruments. Furthermore, interest rates for taxable debt were so low that they were often more appealing than debt from multifamily bonds. This, in turn, reduced the demand for multifamily housing private activity bonds (PABs).

CDFA data show the market remained weak in 2009, but began to recover in 2010, with $2.4 billion in multifamily housing PAB issuance. This amount grew to $6.6 billion in 2015, and then more than doubled to $14 billion in 2016. The multifamily housing bond market has not only largely recovered, but now is very robust.


Blog Graph Total Multifamily Private-Activity Bond Issuance Over the Years
Click to Enlarge


Despite the fact that the quantity of multifamily bonds issued steadily climbed upward between 2000 and 2007, the percentage of multifamily bonds out of PABs issued actually began to decline as early as 2004. This pattern suggests that while the multifamily bond market heated up prior to the financial crisis, the PAB market as a whole heated up even faster. When the financial crisis hit in 2008, the moderate decline of multifamily bonds as a percentage of total PABs accelerated because of the collapse in multifamily bond issuance, with only 9.4 percent of all PAB issuance going to multifamily. CDFA data show that the percentage held steady in 2009, began to recover in 2010, and accelerated dramatically in 2011, as the demand for other PAB eligible uses remained depressed while multifamily recovered more rapidly. Indeed, the percentage of PAB issuance going to multifamily reached a record high in 2016 with 68.7 percent. 


Blog Graph Multifamily Bond Issuance Hits Record
Click to Enlarge


The percentage of total bond cap available used for multifamily housing is another important to point to consider. Between 2000 and 2016, the year with the highest percentage was 2002. According to CDFA, in 2002, 18.3 percent of the total cap available was issued for multifamily housing. The percentage of multifamily housing generally declined at a moderate pace until 2007. The financial crisis hit the multifamily housing market hard, dropping the percentage of multifamily housing from about 12 percent in 2007 to 1.9 percent in 2009. The percentages began to slowly rise in 2010. This growth was partially because of the housing market recovery, and partially because specific provisions of the Housing and Economic Recovery Act (HERA) of 2008 expired. HERA added extra housing cap in 2009 and 2010, increasing the total amount of bond volume cap available, thus pushing down the percentage of the total cap available that was issued as multifamily housing bonds. When the additional housing cap expired, the percentage of multifamily bonds rose. In 2016, the multifamily percentage has increased to 14.4 percent.


Blog Graph While States Still Have Robust Amounts of Overall Cap Available, Multifamily Issuance Represents a Recent High Proportion
Click to Enlarge