If we make it over the fiscal cliff, good times may be ahead for apartment builders—though that’s a big “if.”
“Assuming current trends hold, over the rest of this decade, we will need at least 300,000 new apartments annually, and possibly as many as 400,000, to meet demand,” says Mark Obrinsky, vice president of research and chief economist for the National Multi Housing Council.
That would be great news, if it happened. Right now multifamily developers are happy to be building at a rate slightly faster than 250,000 a year. Most apartment analysts think market will be able to absorb that new construction—but not too much more.
NMHC’s Obrinsky says demand for apartments will soon be as strong as it was before the financial crisis. Ostensibly, that is not a radical suggestion, but this week’s events illustrate a potential problem. More chaos in Congress jolted the markets on Friday, driving the Dow Jones Industrial Average down more than 100 points. Investors worry that the collapse of budget talks may lead the country back into recession. It seems that every time our economic recovery has begun to pick up speed over the last few years, something has happened that makes investors question their most basic assumptions about growth and demand. Uncertainty in Europe has been followed by uncertainty in the Middle East, more uncertainty in Europe, and now uncertainty in Washington, D.C.
Despite these challenges, strong demographics help apartments. The number of people who are in the age group most likely to rent apartments—20 to 34 years old—will grow by 2.4 million people over next five years. That’s the fastest rate of growth for that age group since the early 1980s. The demand from Echo Boomers entering the work force and renting apartments plus rising immigration levels will continue to “significantly surpass new construction of rental units,” according to… Read more…