March 13, 2018 - Article
FEBRUARY 2018 – Construction of new multifamily units—including units in properties of five or more apartments
and units built for rent and for sale—declined sharply during the financial crisis, reaching a cyclical low of 153,000 units under construction in 2010. Activity has surged since then, reflecting a surge in rental apartment development but a comparatively lackluster pace of condo construction in the aftermath of the housing boom. Using a measure of properties with two or more units, the Bureau of the Census reports that fewer than half of multifamily construction starts in 2005 were intended for rent. In contrast, the share of starts intended for rent has held above 90 percent for six years running, hitting a new series high of 95.4 percent during the third quarter of 2017.
Concerns about the potential for oversupply in the rental apartment market are not manifest in broad measures of apartment operating fundamentals. According to the Census Bureau, the vacancy rate across the national inventory of units for rent ended 2017 at 6.9 percent, near its lowest level since the mid-1980s. Similarly, year-over-year rent growth was 3.7 percent in December, just off its highest levels of the current expansion.
Notwithstanding the resilience of the apartment market as new inventory has come online, we continue to monitor local supplyconditions closely. In some metropolitan areas, the potential for oversupply of high-end units in the urban core and the possibility of surpluses of smaller studios and one-bedroom apartments require ongoing assessment. Nationally, even as construction starts have slipped from their highs, the pipeline of units still under construction and not yet delivered is holding near its highest levels in more than 40 years, feeding a robust schedule of deliveries into 2018 and beyond.