LAS VEGAS – The National Association of Home Builders is forecasting an increase in multifamily construction in 2014, but a few hot markets, such as Texas, need to be monitored to make sure an oversupply is not developed.
“The multifamily market has come a long way since the collapse,” said panelist Guy K. Hays, president of Legacy Partners Residential Inc. in Foster City, Calif. “Overall, supply and demand are in balance, and in most markets there is a need for the continued production of new units.”
Hays, a panelist speaking at the NAHB’s International Builders Show in Las Vegas, said financing for new apartment projects in Houston has become more difficult to obtain recently because lenders are aware that the Texas city has seen a large number of new units open in the last two years. Also, downtown Seattle should be on the overbuilding watch-list, Hays said, although the industry is a long way from a overbuilding problem situation anywhere in the nation at this point.
While the NAHB panelists are optimistic about the future of the multifamily housing market, there are still challenges that face the industry such as the availability of labor and rising cost of some building materials. But demand for apartments is strong enough for developers to proceed in most markets, the panelists noted at the NAHB news conference.
Strong demand for apartments will increase over the next several years, said the NAHB chief economist.
And while multifamily construction continues to be strong, NAHB does expect the speed to decrease as sustainable levels are reached in 2015 or 2016. “The multifamily market has rebounded significantly from its trough in 2009 at 82,000 multifamily housing starts to 340,000 in 2013,” said NAHB Chief Economist David Crowe. “NAHB is forecasting 363,000 multifamily housing starts in 2015, which is above the previous longer term average of 340,000 as more young adults prefer renting.”
The strong performance in multifamily comes from three sources, explained Crowe. “First, during the collapse, production of multifamily housing had significantly decreased, so part of the resurgence in 2011 was just catching up with a more normal flow. Second, the strong demand for apartments is being fed by a rising demographic of echo boomers that will continue to grow in size as we absorb people born after 1980. Third, young adults who might have otherwise chosen homeownership, and some older adults as well, are hampered by a variety of issues, such as unusually tight underwriting standards for mortgages, lower credit scores because of the slow employment market and lower entry salaries. As a result, the share of households that rent rather than own has increased steadily since 2004 and will likely continue until jobs are more secure, mortgages more accessible and careers more stable.” Many markets have regained their footing and are producing at least as many multifamily units as they did during the relatively stable period between 1996 and 2006. “