Too Much of a Good Thing?

August 31, 2012 at 12:51 pm Leave a comment

In an article titled “The Age of Multifamily” there’s some ink dedicated to the question of whether or not there’s a possibility of too much multifamily construction in the offing:

With development still well below historic levels, it’s hard to imagine that there could be excess multifamily construction any time soon. Yet, a wave of construction projects that were planned and permitted before the downturn may cause a brief oversupply in some markets starting in 2013, notes Emily Goodman, CPM, regional property manager for CORE Realty Holdings Management in Greensboro, N.C. She estimates that at least 2,200 new multifamily units are either under construction or proposed in the Piedmont/Triad area of North Carolina. That’s a lot in a market with only about 59,000 existing conventional units, according to Charlotte-based research firm Real Data. Once these “legacy” projects are complete, however, the time needed to plan, approve, and finance projects may create a temporary dip in building, says Willett. That could temper oversupply risks. So could continued difficulty obtaining financing. “Equity providers have pulled back on new development deals, and construction lenders, while aggressive on the best projects with the best borrowers, remain cautious,” says Witten…

Longer-term threats to multifamily prosperity are more likely to come from unrealistic rent-growth projections, says Willett. Unless wage growth picks up, rents that rise too fast could outpace residents’ ability to pay and fuel a flight to home ownership. Add inflation to the mix, and “rent growth could be a challenge later in the decade,” he says.

While uncertainty about jobs and financing may slow apartment expansion, the same uncertainty makes renting a good alternative for consumers who aren’t confident in their future, says Greenblatt. “As long as the market doesn’t get too overheated,” he says, “multifamily prospects are very strong.”

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Entry filed under: Apartment Construction, Economy, PTAA Members in the News. Tags: , , .

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