Multifamily is at an inflection point.
During the pandemic, multifamily transactions never stopped, and borrowers benefited from a historically low-rate environment enabled in part by Freddie Mac’s countercyclical role. But as the economy emerged from the gloom of the pandemic, multifamily demand accelerated, vacancies cratered, and rents shot up like nothing we have ever seen.
The reasons for this are multiple:
- A housing supply shortage predating COVID-19;
- A tighter rental market from household formation and an increased desire for space;
- Renters being priced out or otherwise unable to purchase in the competitive single-family home market; and
- Economic pressures from work-from-home relocations, higher salaries and inflation.
The supply side saw big changes, too, as investors seized on the demand pressure and to benefit from the sector’s reputation as a proven, reliable asset class and inflation hedge. This surge in capital drove new construction — an excellent signal that supply has room to grow even if never fast enough.
Affordability Concerns Mount Amid Market Uncertainty
Still, affordability concerns linger. Our recent survey showed that 58% of renters have seen rent increases in the past 12 months, with a full third saying these increases were greater than any raise they received at work. More concerning is that nearly 20% say their rent increase makes them extremely likely to miss a rent payment.
At the same time, inflation risk and recession fears have many debt providers tightening or closing up. We have a negative leverage issue with note rates catching up to, and in some cases surpassing, cap rates which have been trending down for some time. Fewer deals seem to pencil as interest rates surpass investment returns. As a result, the market is in a period of transition.
The fundamentals, however, are very strong, and lenders who maintain credit discipline and appropriately distributed risk are well positioned to weather even a serious economic downturn.
Freddie Mac Multifamily counts itself among those market participants and stands ready to continue deploying capital consistently, responsibly and in line with our mission. That’s more important than ever, given the essential role we play in helping address the housing affordability crisis.
Spelling out the Mission-centric Goals
To address the affordability crisis, we are driving toward a record year for our Targeted Affordable Housing business, and we’re poised to meet our aggressive affordability goals. This year we’re prioritizing our mission-driven business with the following goals:
- At least 50% of production volume for families earning 80% of area median income (AMI), and
- At least 25% must support units affordable at 60% AMI.
Separately, we recently announced a landmark Equitable Housing Finance Plan that proposes several initiatives aimed at enhancing borrower diversity, advancing tenant interests, and broadly addressing affordability through both preservation of and support for new supply. We’ve also expanded our Duty to Serve commitments to address housing needs in underserved markets, including rural communities and manufactured housing communities.
We know there is tremendous work to be done to ensure that more Americans can find safe and affordable rental housing, and as the new head of Freddie Mac Multifamily, it’s my highest priority. As the market dynamic shifts, we will continue to ensure a stable foundation for the multifamily industry while seeking out innovations that can make home possible for more of the nation’s 44 million renting households.