Posted February 07, 2013 by RentJungle
It’s natural to worry about whether apartment markets will get overbuilt.
The development pipeline is robust. But market researchers at the at National Multi Housing Council’s annual meeting, held January 22-23 in Palm Springs, Calif., said that the sector remains in the clear—for now. While the pipeline in some markets is at worryingly high levels, the national supply is within normal levels.
Apartment developers now have plans to build roughly 1.4 million new apartments nationally, according to data from NMHC. More than half of the apartment companies report they are buying developable land, lining up financing and getting building permits, according to NMHC’s latest survey of its own members.
But many of those planned units are still just plans. “We don’t think all those 1.4 million units in the pipeline are real,” says Ron Witten, founder of apartment market advisory firm Witten Advisors. Many will not actually start construction for years, if they ever do.
That’s especially true in markets with high barriers to entry such as Boston, where it can take developers as long as seven years to get the permission to build from local officials needed to build. Cautious underwriting, limited debt capacity, rising land and construction costs and weaker rent growth may also keep many of those units from fruition.
“We think instead that starts, perhaps, aren’t even going to get back to 250,000 in the near term,” Witten reported at the NMHC conference. Other analysts gave similar estimates. That’s slightly more than last year, when multifamily starts finished at an annual rate of just 212,000.