U.S. Apartment Construction Set to Decline Despite Continued Demand

Apartment construction continues to steam along, but it is set to decline despite a continued demand for more units in cities across the US. From the Wall Street Journal:

Overall U.S. housing starts declined for the fourth time in five months in July, the Commerce Department reported Wednesday. Total housing starts decreased 4.8% from the previous month to a seasonally adjusted annual rate of 1.155 million.

While starts edged 0.5% lower for single-family construction, they plummeted 17.1% for construction on buildings with five or more units. Apartment construction is tapering off because of an oversupply of units, especially at the top end of the market that is causing rents to flatten in many major cities.

“I’m optimistic that single-family will catch up,“ Mr. McLaughlin said. ”It’s not going to happen this year and it’s probably not going to happen next year.”

There are immediate consequences to a pullback in multifamily buildings if single-family doesn’t immediately catch up. It could exacerbate a shortage of homes. While there is a surplus of luxury apartments in most major metropolitan areas, housing overall remains scarce.

A question not addressed in the article: where are all the construction workers going to come from to build those single family homes?

Why Renters Are Moving Less … For Now

This post at NAA’s APTly Spoken blog provides some interesting insights as to why renters are moving less than they used to:

Finally, drilling down to specific housing-based moves for renters, a new or better apartment remains the number one reason for moving, but has slipped since 2000, along with leaving for a better neighborhood. Financial considerations have become increasingly important, with more than a fifth of renters moving for less expensive space last year.

Source: NAA’s Aptly Blog

With most analysts in consensus that this apartment housing cycle is past its prime, as evidenced by potential oversupply and peak pricing in some market segments, we may very well see renter mobility rates pick up somewhat in the coming years. Regardless of the fact that renters are actually moving less, the peace of mind that comes from knowing you can pick up and go for any opportunity life throws your way no doubt remains a compelling incentive for renting over buying.

Jon Bell Talks Apartment Deals

The Triad Business Journal interviewed Bell Partners CEO Jon Bell about his company’s approach to doing deals. Here’s an excerpt:

What’s the secret to doing well when it comes to apartment investment and management?

We focus on larger markets. We believe there’s less risk there. Not to say there’s not money to be made in some smaller markets, but to mitigate risks, we concentrate on larger markets.

Are there any markets in particular your company favors?

We have 12 acquisition markets. They range from Boston in the north to Miami in the south. It stretches west to southern California and includes Washington, D.C.; Austin, Texas; and Denver, Colo. We feel very good about these areas.

What’s your appetite for deals going forward?

I like to say we’re an aggressive seller and a judicious buyer. We’re always looking for good opportunities.

What about the Triad? Any interest in purchasing properties here?

The Triad is a wonderful place to live, but it’s not a target market for us.

Rents Rise, Vacancies Fall Nationwide

Today’s Wall Street Journal has an article about rising apartment rents in the US:

And with vacancy levels falling, rents appear poised for further growth, according to Reis, which said the rental vacancy rate fell to 4% in the first quarter, down from 4.2% in the fourth quarter and half the level in 2009.

“Rents are at a higher base and still growing,” said Ryan Severino, an economist at Reis. “They will likely keep growing for the next few years.”

Rental pressure has been building for years, as rising demand has run into an undersupply of apartments. With employment rising slowly but steadily, more young people are forming households, usually by leaving their parents’ residences or breaking off from groups of roommates.

In the Triad rents have been projected to grow and vacancies to fall as well, but not as much as the national average. In it’s Fall 2013 report Real Data projected the Triad’s vacancy rate to approach 6% and rent to increase 2-3% in 2014. Thus the market is strong for the Triad relative to its past performance, but still lags behind other markets throughout the US.