The Inside Look with Xander Snyder - Episode 12

In this episode of ‘The Inside Look,’ Senior Commercial Real Estate Economist Xander Snyder discusses the shift in Multifamily supply.

People looking for a new apartment to rent will soon have a lot more options to choose from, as the number of new apartment units coming to market is hitting rates not seen in several decades.

• According to the U.S. Census Bureau’s latest data release on new residential construction, 656,000 new apartment units were completed in June of this year (at a seasonally adjusted, annualized rate), which was the highest number delivered since 1974.

• The multi-decade high in completions isn’t necessarily a surprise, since the number of apartment units under construction hit an all-time high last year. The number of units under construction, as a result, is continuing to gradually decline.

However, there is a more recent development: as the new supply of apartments across the country is increasing, the number of apartment construction starts has been falling since early last year.

• Construction starts is what’s called a "leading indicator," as it provides information about how many apartments under construction there will be in the future.

• As construction starts today fall, fewer apartments will be under-construction in the future, limiting the amount that is available to be delivered to market.

This combination of rising completions and falling starts is resulting in a two-stage supply dynamic for multifamily, at least at a national level.

• In the first stage, say over the next year or so, a lot of new apartments will provide renters with choices, putting downward pressure on rents and, in some markets, resulting in rent declines.

• As the current pipeline of supply falls, we’ll gradually enter the second stage. At that point, renters will again have fewer choices as the future supply pipeline will have been depleted by these falling starts. What’s more, even after the current pipeline of supply is fully delivered, the country will remain structurally underbuilt.

As a result, oversupply will be a major story for the next year, but following that, undersupply will once again prevail as the primary multifamily market dynamic.

I’ll be giving a handful of talks this September in the Midwest – Cleveland, Columbus and Indianapolis. If you’re interested in attending any of these, please reach out to your local First American representative.