WASHINGTON, DC – Increased demand for rental housing has led to a considerable uptick in multifamily construction, finds the National Multi Housing Council’s (NMHC) latest Quarterly Survey of Apartment Market Conditions.
The pace of development activity has increased in most markets. Two-thirds (67%) of respondents noted considerable activity, either in the planning stage or actual new construction. In particular, 20% said developers are breaking ground on new projects at a rapid clip. The other 47% reported an increase in pre-construction activities—acquiring land, lining up financing, getting building permits—but not much actual construction yet.
Even with this increased activity, more than half (54%) think new development remains considerably below demand.
“Powerful demographic trends along with changing attitudes about homeownership and tighter mortgage underwriting continue to drive a shift toward renting, which is fueling a ramp up in new construction,” noted NMHC Chief Economist Mark Obrinsky. “While some survey respondents expressed concern over sporadic overbuilding, others noted that the lack of construction financing may prevent some developments from actually breaking ground.”
Overall, the apartment market continued its healthy growth, although there is some evidence of a slowdown. For the sixth time in the last seven quarters, all four market indexes were above 50—a reading above 50 indicates improving market conditions—although all four fell, suggesting less widespread growth than the prior quarter.
“A narrowing in the extent of the improvement is not unexpected after almost two years of strong gains,” said Obrinsky. “As long as the economy continues to generate jobs, the apartment upswing should remain on track.”
Key findings include:
The Market Tightness Index, which measures changes in rents and vacancies, dropped from 82 to 52. Even with the decrease, this is the seventh straight quarter the index topped 50. One quarter (27%) of respondents still saw tightening markets, and 51 percent said markets were unchanged. Twenty-two percent said markets were looser, a considerable increase from the 3% of the previous survey.
The Sales Volume Index decreased to 54 from 70, its eighth quarter of an above-50 reading. One quarter (27%) said their markets saw more transactions last quarter, but the number of respondents who saw fewer deals rose from 5% last quarter to 20% this quarter.
The Equity Financing Index fell to 54 from 70, its ninth quarter of an above-50 reading. The majority of respondents (55%) said that equity financing conditions were unchanged from the previous quarter, while 24% said equity was more available and 16% said it was less available.
The Debt Financing Index decreased slightly from 74 to 70. Just under half (49%) said borrowing conditions were unchanged, while another 43 percent said now is a better time to borrow. Only 3% believed conditions had worsened over the past three months. Although the Debt Financing Index has historically been more volatile than the others, this marks the sixth quarter out of the last seven in which it has exceeded 50.
Full survey results, along with charts and data, are posted here.
Based in Washington, DC, NMHC is a national association representing the interests of the larger and most prominent apartment firms in the U.S. NMHC’s members are the principal officers of firms engaged in all aspects of the apartment industry, including owners, developers, managers and financiers. One-third of Americans rent their housing, and over 14 percent live in a rental apartment.