1. 2019 FHA MAP Market Study Review Guideline
Robert Vogt Vogt Strategic Insights

2. Review Process:
National Council of Housing Market Analysts (NCHMA) has been providing feedback to HUD regarding the market study guidelines.
NCHMA compiled issues that have come up over the years based on:
Listening sessions with:
Practitioners (Market Analysts)
Chief Underwriters of FHA Lenders
HUD Personnel/Appraisers and Underwriters
Chief Technical Specialists
Transmit comments to HUD

3. Limited Scope Market Study Updates
Addresses key issues without requiring updating all contextual information included in the original market study and can typically be conducted as a ‘desktop analysis’.
Designate maximum time of effective date from date of submission ( days).
State when further update is required if issuance of firm commitment is more than X days from effective date of original report.
Components of limited scope update report:
Revisiting the demographic and competitive environment.
Recalculation of Net Demand and Effective Demand.
Discussion of subject property’s proposed rents in the current competitive environment.

4. Net Demand Analysis
Forecast period should not exceed 36 months except for extenuating circumstances. If demand period exceeds three years, demand should be “normalized” to reflect potential long term pipeline.
Regardless of the financial underwriting criteria, the demand analysis should reflects a 95% market-wide occupancy level.
Analysts should comment on the potential impact of net demand conclusion on future occupancy levels in the market by the end of the forecast period.
Net Demand and other factors including market and economic conditions need to be considered to fully understand the market.

5. Effective Demand Analysis (Capture and Penetration Rate)
Capture Rate should be designated as RENTER capture rate rather than total income-qualified households.
Household projections should reflect the household growth in the Primary Market Area, from Secondary Market area and whether households are migrating from neighboring areas or well outside PMA.
Capture rate by household size should be addressed on an as- needed basis.
HUD should not be designating benchmark capture rates.
Analysts should comment on the potential impact of net demand conclusion on future occupancy levels in the market by the end of the forecast period.

6. EMAD Comments
EMADs (Economic and Market Analysis Division) role is to evaluate the housing market from a MACRO vantage point. EMAD typically comments on the overall market demand for rental housing in the Housing Market Area, which is typically a metropolitan area or county.
Most comments are general or vague without any specific data or geography cited, which limits the ability to provide a meaningful response.
Recognizing HUD’s concern about disseminating proprietary information from data services, it is difficult to discuss trends without the transparency of understanding the data on which EMAD’s judgement is made.
If specific data is not available, at a minimum, we should understand the geography and some summary of the data on which an analysis

7. Rents Used in the Study
Market analyst uses appraiser’s rent in the report in Demand Calculations, rent position evaluation and absorption estimate. Analyst delivers draft evaluating developer’s rents. Then issues final report with Effective Demand and Absorption based on Appraisers Rents.
Market analysis and appraisal are conducted as separate activities and charge the lender’s underwriter to reconcile any variations between the rents. Under this approach, the market study’s effective demand analysis (affordability and penetration), evaluation of price position and absorption estimate will not reflect the final appraiser’s rents of the project.

8. Commercial Analysis Definition of appropriate scope.
Should scope be dependent on the size of the commercial space?
Is it necessary to conduct any analysis if a project has limited commercial square footage (less than 5,000 sq. ft.)?

9. Potential Commercial Work Elements
Traffic counts.
Trends in commercial space vacancy rates.
Commercial rents in the submarket.
Potential work elements.
Sample of rents presently available in the market.
Pipeline of commercial properties.
Expenditures analysis to identify retail ‘gaps’.
Opinion on commercial development opportunities

10. Demand Analyses & Considerations
Net Demand: Estimate of future demand for the specified forecast period, typically 36 months, based on a calculation of incremental demand (i.e. demand for additional new units).
Effective Demand
Capture Rate is the percentage of age, size, and income qualified renter households in the primary market area that the property must capture to fill the units.
Penetration Rate is the percentage of age and income qualified renter households in the primary market area that all existing and proposed properties that are competitively priced to the subject that must be captured to achieve the stabilized level of occupancy. 10

11. Net Demand For Rental Housing Should Consider
Household Growth
Demolitions & Replacement
Vacancy Levels
Seasonal Housing & Short-Term Rental
Change in Tenure Over Time (% of Renter Households)
Supply
Units Under Construction & Proposed
Subject
Reconciliation of Demand and Supply 11

13. Capture Rate
Definition: Capture rate is the percentage of age, size, and income qualified renter households in the primary market area that the property must capture to fill the units.
Calculation: Capture Rate is calculated by dividing the total number of units at the property by the total number of age-, size- and income- qualified renter households in the primary market area.
Special note: Beware of calculations that use an artificially low rent within the project.
Some definitions do not include size though optimally the analyst should.
Funding agencies may require restrictions to the qualified households used in the calculation including age, income, living in substandard housing, mover-ship and other comparable factors. The Capture Rate is calculated by dividing the total number of units at the property by the total number of age, size and income qualified renter households in the primary market area. See also: penetration rate.

14. Penetration Rate
Definition: Penetration Rate is the percentage of age and income qualified renter households in the primary market area that all existing and proposed properties that are competitively priced to the subject that must be captured to achieve the stabilized level of occupancy.
Calculation: Penetration Rate is calculated by dividing the total number of units at the property and all existing and proposed properties, to be completed including the subject by the total number of age, size and income qualified renter households in the primary market area.

15. Calculating Capture Rates & Penetration Rates
Maximum income limits by household size based on HUD issued income limits.
Minimum income required to live at the property is based on the lowest gross rent (including all utilities) offered at the subject site.
Rent burden: accepted ratio of gross rent to income is 35% for families and 40% for seniors.

16. Affordability @ 30% Rent Burden
Illustrates impact of various rent burdens

17. Interpreting the Capture Rate
There are no definitive right or wrong capture rate.
Capture rates and penetration rates must be considered within context of market.
Senior projects are more likely to consider support from homeowners.

18. Effective Demand Interpreting Capture Rates
5% Capture Rate (need to get 1 in every 20 eligible households)
33% Capture Rate (need to get 1 in every eligible households)
An acceptable capture rate only indicates sufficient demand to support the proposed number of units at the proposed income levels. It does not include an evaluation of the subject development versus the existing rental stock.
Income-qualified households

19. Downtown Cincinnati: 2.6%
Downtown Pittsburgh: 1.9%