With pent up demand for multifamily why is the construction pipeline slow to respond? Credit underwriting. With a plethora of real estate assets available for sale why is sales volume year-over-year about the same? Credit underwriting. Real estate finance is not for the faint of heart. The credit pipes "frozen" in 2008 continue to un-thaw three years later. And reading demographic trend tea leaves is becoming a tricky business.
With no end in sight to the current credit crisis, multifamily construction is hampered to the Nth degree. Multifamily owners benefit now, yes, with less product in the pipeline and pressure on rents. However, the need persist for more multifamily housing even as economy begs for construction jobs. With the lingering glut of foreclosures and limited consumer demand for new homes, housing starts have few friends.
"Since the beginning of this recession the home ownership rate in the United States has dropped from 69% to 66%" - RBC Capital Markets
Do we really need the housing starts going forward? Is there a pending housing shortage? Here are some facts:
• Fact: U.S. population growth is slowing to around one percent
• Fact: The average age is increasing to over 35 years old
• Fact: The U.S. birthrate is slowing
Makes you think, yes? Commercial lenders ponder these same conditions. Thus, in underwriting they are taking their sweet time assuring to cross every T when it comes to approving new loans including those with higher risks quotients- like construction loans.
I continue to believe we will experience a housing shortage, or at the very least, a squeeze by 2015. A diminishing housing stock (losses from flood, fire and demolition) dove-tailing with such low current levels of new construction will lead to double-digit rent growth again for an extended period.
Looking towards 2020 and 2030 I do see a creep from the facts noted earlier in terms of lower need. As people age, they generally need less space. The wild hair here is in-migration. Twenty years from now will America still be the place "go to" place for those with an entrepreneurial spirit and free market mentality? I hope so.
So before heaping more coals on the head of your mortgage banker based on their slowness to respond, consider they are reviewing these same demographic dynamics as to when housing stock will balance with need. Even with with massive computing power and more than just a few well paid mathematicians the answer remains elusive.
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Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel. For more information, visit: www.MultifamilyInsight.com
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