Northwest Apartment Investor Newsletter - December, 2019

THE NORTHWEST

APARTMENT INVESTOR 2020: A Look Ahead By Greg Frick, Partner, HFO Investment Real Estate

The multifamily investment market, both nationally and locally has seen stellar performance over the past several years. The Pacific Northwest region continues to have investment dollars looking to capitalize on the strong fundamentals of this region. Low unemployment with robust job creation has continued to fuel in-migration to the Pacific Northwest. This trend of strong population growth combined with high barriers of entry to the delivery of new supply has fueled sustained rent growth. With market-driven rent growth, we have seen a significant increase in political pressure. Cities and states have implemented or are considering measures attempting to limit rent increases. As an example, Oregon recently became the first state to pass statewide rent control. At the municipal level, the City of Portland has been at the forefront of passing legislation that has made it more expensive to operate rental housing in the city. We hope that as elected leaders try to address the need for affordable housing, they enact policies that make it easier to build units instead of penalizing the people who provide housing. Such examples include: • Reducing exclusionary zoning • Allowing more density • Easing the cost of red tape and fees for developers It’s hard to imagine why, in setting goals to bring more housing to the market, you would penalize the people providing and building such housing. That’s like saying, “food is too expensive, so let’s add a tax on food.” Elected leaders need to explore creative ways to help families in need, such as expanding the voucher program and potentially other solutions we’ve researched and discussed in this newsletter. On the investment side, the low interest-rate environment coupled with large amounts of capital looking for yields continues to drive cap rates to historic lows. Investors who have been in the game for a long time have had to adjust their cap rate expectations to stay competitive. The political environment has been and will be something we will continue to have to navigate. I hope that legislators genuinely want to solve the housing affordability issues and will work with stakeholders to produce solutions. Housing is a complex issue – when politicians rush to implement “soundbite” solutions, it can create inefficiencies that are counterproductive to the goals of their communities. I hope we will continue to work with local leaders to come up with solutions that do not add to the cost of building new housing.