7.5.1 Purpose and Focus of the Study

A. The purpose of the market study is to assure that there is enough sustainable demand for additional units without adversely impacting the existing supply, so as to maintain a balanced overall market. The

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Chapter 7 Valuation & Market Analysis 7.5 Content and Format of the Market Study

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focus of the market study is on the overall demand within a defined market area, and of the proposed project’s ability to capture and sustain a share of the total (incremental demand). The primary and secondary market areas analyzed by the Lender’s market analyst may be narrower in scope than the market analysis prepared by the HUD Economic and Market Analysis Division (EMAD), which analyzes the broader Metropolitan Statistical Area (MSA), county, or smaller submarket area as appropriate. The market analyst must, however, also discuss the larger MSA or county. The study must estimate the number of renter households with sufficient incomes to afford the type of housing at the rents proposed at present, as well as any expected changes in rental housing demand in the foreseeable future (typically the next 3 to 5 years). The study must also identify and discuss any risks associated with longer-term changes in rental housing demand (during the term of the mortgage). In addition, the study must estimate the number of units that the market could reasonably absorb over a specified forecast period, which is typically 3 years, taking into consideration competitive units in the existing inventory, units currently under construction, and units in the planning pipeline, as well as the gross and contract rents of those units.

B. For projects designed for the elderly, families, and persons aged 62 and over, the study must define the age restrictions, the anticipated household configuration, and any anticipated household services. The study must also estimate the number of elderly households with sufficient incomes to afford the type of housing and services (if any) under study, any expected change in the number of such households, the proportion of those households that would need and demand such housing, and the number of units that the market could reasonably absorb and sustain over the forecast period.

C. The market study and appraisal should be completed by two separate entities in order to preserve independent analysis and conclusions. Any alternative, such as two individuals from the same firm completing separate reports, must be documented/supported by the MAP Lender, approved by HUD at the concept meeting, and documented in the encouragement letter issued by HUD.

D. No market study, other than that which would be provided in the appraisal, is required for projects with 90% or more project-based rental assistance.