State-Level Multifamily Housing Bonds Trends Shed Light on Uneven Recovery

Published by Michael Novogradac on Friday, October 24, 2014 - 12:00am

At the Bipartisan Policy Commission (BPC) housing summit one of the proposals discussed was President Barack Obama’s proposal to allow the conversion of tax-exempt private activity bonds (PABs) into 9 percent low-income housing tax credits (LIHTCs).This conversation brought up important concerns about the current health of the PAB market and the national economy. The Internal Revenue Service’s (IRS) recent release of 2011 data about qualified residential rental bond issuance on a state level (sometimes referred to as multifamily housing bonds) reveal trends that place those concerns in some context.

Changes from 2010 to 2011

The IRS’ recently released, and most current data show only 14 states issuing more residential rental bonds in 2011 than in 2010. There are probably a few more states that did so, but some states choose not to disclose publicly how much of their total PAB issuance was allocated to multifamily housing bonds. In 2010, 35 states and territories (including Puerto Rico and Washington, D.C.) issued residential rental bonds, according to the IRS. Similarly, in 2011, 35 states (including Washington, D.C.) did so. The states and territories that issued bonds in 2010 but not 2011 were Alabama, Alaska, Kentucky, Mississippi, Oklahoma and Puerto Rico. Conversely, Arizona, Hawaii, Idaho, Nevada and Rhode Island didn’t issue residential rental bonds in 2010 but did so in 2011.

IRS data shows that eight states issued fewer residential rental bonds in 2011 than 2010, and 11 states issued zero in both years. The decline in bond issuance was influenced by many factors, including the expiration of New Issue Bond Program, which used Treasury funds to purchase PAB. This factor, among many others, limited states’ ability to issue multifamily housing PABs. While the multifamily housing bond market had begun to heal by 2011, the road to recovery remained long.

Changes from the Peak

A peak year for residential rental bond issuance was 2007. Nationally, more than $7.3 billion residential rental bonds were issued, according to the IRS. (Council of Development Finance Agencies (CDFA) data differs from IRS significantly on this point, indicating that $5.8 billion of residential rental bonds was issued. The IRS’ data are more accurate, because the CDFA conducts its survey of issuers six months after the end of the calendar year, which may not capture all issuance. The IRS data captures actual issuance data submitted by issuers to qualify for tax-exempt status.) Total residential rental bond issuance fell by almost 38 percent in 2008, according to IRS figures. (CDFA data showed a steeper decline, with residential rental bond issuance falling by 78 percent from 2007 to 2008.)

Blog Map Ten States with the Largest Residential Rental Bond Issuance 2007
Click to Enlarge

By 2011, national residential rental bond issuance recovered somewhat. The IRS reports approximately $5.2 billion residential rental bonds issued. (CDFA data indicates $4.6 billion in residential rental bonds was issued.) 

Blog Map Ten States (including Washington, D.C.) with the Largest Residential Rental Bond Issuance 2011
Click to Enlarge

Another sign of the still weak recovery is the number of states that issued no residential rental bonds. The IRS reports that in 2007, only five states issued no residential rental bonds; in 2011, that number grew to 16.

Residential rental bond issuance is driven by three broad factors: demand for residential rental bonds generally; demand for residential rental bonds relative to other types of PABs; and the difference between taxable financial instrument interest rates and tax-exempt PAB interest rates. Even if demand for residential rental bonds is high, if state PAB allocating agencies choose to allocate more of the bond cap toward other types of bonds, such as mortgage bonds (which support single family housing), the issuance of residential rental bonds can decrease.

Blog Chart Graph CDFA and IRS Qualified Residential Rental Bond Issuance Data, 2007-2011
Click to Enlarge

The IRS reports that in 2007, residential rental bonds made up 9 percent of total PAB issuance, while mortgage revenue bonds made up 16 percent. CDFA’s data indicates much higher percentages for both categories, with residential rental bonds making up 21 percent and single family mortgage revenue bonds making up 33 percent of total bond issuance in 2007. IRS data show a shift toward multifamily housing by 2011; more than 13 percent of total PAB issuance was residential rental bonds in 2011, and 18 percent was for mortgage revenue bonds. The CDFA data show a similar, albeit larger shift. CDFA indicates that in 2011 36 percent of total PAB issuance was for residential rental bonds and 44 percent was for mortgage revenue bonds. Mortgage revenue bonds continued to exceed residential rental bonds, but the gap had narrowed. One reason for this contraction is that the single family mortgage market is much larger and more easily accessible to borrowers than the multifamily market. As the economy recovered, borrowers could more easily shift back to using private sources of single family housing debt than they could to multifamily housing debt.


While the IRS data confirm the broader story of weak, but recovering multifamily bond markets told by other datasets, analysis of state level trends also tells a more nuanced story of local variation. Recovery from the recession hasn’t been evenly distributed. Some states’ multifamily housing bond markets have roared back to life following the 2008 financial crisis, but many remain quietly mired in post-crisis malaise.