Market Changes and the Outlook for Affordable Rental Housing

1. Market Changes and the Outlook for Affordable Rental Housing Affordable Housing Conference of Montgomery County, Maryland May 3, 2010 Patrick McMahon Portfolio Manager Housing Opportunities Commission of Montgomery County

2. Recessions and unemployment

3. Long-term unemployment

4. Montgomery County vs National

5. Montgomery County vs National

6. Montgomery County vs National

7. Montgomery County vs National

8. March, 2010 Montgomery County Foreclosures Source: RealtyTrac.com

9. Montgomery County Foreclosures by Area – October 2009 Source: RealtyTrac.com

10. Montgomery County Foreclosures by Area – March 2010 Note the reduction in magnitude from October 2009 (the previous slide) Source: RealtyTrac.com

11. Comparison of Montgomery County Foreclosure Rate with State and National March, 2010 Source: RealtyTrac.com

12. Comparison of Montgomery County Foreclosure Rate with Other Counties March, 2010 Source: RealtyTrac.com

13. Source: Delta Associates

14. Source: Delta Associates

15. Source: Delta Associates

16. Source: Delta Associates

17. The coming shortage in rental housing in Montgomery County as the pipeline approaches full absorption. Source: Delta Associates

18. Macroeconomic Factors Impacting Rental Housing - The Coming Impact of the “Echo Boomers” • Generation Y, born between 1982 and 2002, is between 72 to 81 million strong in the U.S. and is just as large as the baby boom generation. This generation is predicted to make up the bulk of the US population within 20 years, according to the Alliance for Children and Families. • According to a 2005 study by RMG Connect, an international specialist in relationship marketing, one in three echo boomers is non-Caucasian, one in four is from a single-parent home, and three in four have working mothers. • The Echo Boomers are getting ready to enter the housing market, almost universally as renters. By 2015, there will be 67 million people aged 20-34 in the United States - people in their prime renter years.

19. Added Impact of Immigration

20. The Future of Housing Needs • In addition to the Echo Boomers, an estimated 10 million immigrants will come to this country in the next 10 years • The U.S. population is expected to increase to 376 million by 2030. • That’s 94 million more people than there were in 2000. • To accommodate that growth, the estimated housing need is for 60 million new housing units.

21. Social Changes Accompany Population Change • For 50 years, families with children drove America’s housing industry. • Married couples with children are projected to decline to just 1 in 4 households by 2025. • By 2020, singles and unrelated individuals living together will comprise one out of every three households. • Increase in multi-generational households – a 30% increase in the last 10 years and expected to increase further. • These trends will support a greater need for multifamily housing. • This paradigm shift is already taking hold. In a new plan adopted in November 2009, Montgomery County is promoting • Denser development • Transit-oriented development • Development that promotes bike paths, walkways, nearby shopping and amenities • Environmentally friendly construction methods • That is, multifamily development.

22. Housing Affordability • 35 million households spend 30 percent or more of their annual income on housing. • 114 million people live in households that did not earn enough ($37,105) to reasonably afford a two-bedroom apartment. • Employment challenges, housing availability and population increases are merging to form a serious challenge to housing affordability. • The “housing wage” in Montgomery County is $59,760; in the state of Maryland, it is $50,822.

23. Changing Perceptions of Rental Housing • Rental Housing is Not Housing of Last Resort • 24 million households—more than 20 percent—call an apartment home. That number is growing, and likely accelerating. • In 2006, Harvard’s Joint Center for Housing Studies predicted an increase of 1.8 million renters by 2015. In fact, there was a surge of 1.5 million renters from 2005 to 2007 alone.

24. Changing Perceptions of Rental Housing • The Homeownership Bias • In 2006, the federal government spent approximately $216 billion on housing programs and tax expenditures. • 73 percent went to homeownership; just 27 percent went toward rental housing. • The tax expenditure for the the deductions for mortgage interest and property tax is greater than the combined federal spending on education, roads, mass transit and national parks.

25. Changing Perceptions of Home Ownership • On March 23, 2010, House Financial Services Committee Chairman Barney Frank stated that the government makes a mistake when it “overly invests in homeownership” and is “better off trying to subsidize rental housing”. • This is indicative of a “sea change” in policy thinking.

26. The Myths of Homeownership • Housing is a great long-term investment • Recent experience suggests otherwise • From 1975 – 2008, real appreciation in owner occupied homes was modest – approximately 1% per year. • Homeownership is good for society because owners make better citizens • National Multi Housing Council (NMHC) research, based on the National Social Survey indicates that apartment residents, in comparison to homeowners, are • More socially engaged • Equally involved in community groups • Similarly attached to their communities and involved in local and national affairs • Owning a home is cheaper than renting one because you save on rent • NMHC estimates that, on a national basis, it costs $311/month less to rent than to own • Homeownership gives greater freedom with property, but that is often limited by local ordinances and HOA requirements • Homeownership requires greater commitment in time and money to maintain