Apartment Construction Is Expected to Slow Down in 2018 After a 6-Year Upward Streak
Highlights:
- Almost 283,000 new apartments are expected for completion by the end of 2018, 11% less than last year.
- Apartment construction peaked in 2017, finally slowing down in 2018.
- In spite of the year-over-year slowdown, the past three years’ total deliveries are projected to pass the 900K mark by the end of this year – the highest since the mid-‘80s.
- Continuing the trend seen in recent years, Texas is leading the nation with more than 37,000 units slated for delivery in 2018 in Houston, DFW, Austin, and San Antonio combined.
Following an almost decade-long period of vigorous expansion, the growth of the U.S. renter population has reached a plateau in 2016. Construction had continued to break records – until this year, when Yardi Matrix market data suggests that the total number of new completions is going to remain far below the 300K mark.
Compared to 2017 when the number of new deliveries reached an all-time high mark in the last 20 years, 2018 will see about 34,900 less deliveries ready to hit the market. The amount of new construction has followed a fast-ascending trend in the past 6 years, but the trend is estimated to change course this year. 2017 deliveries represented a new post-recession high, although actual apartment deliveries last year came short of initial estimates in many metros, due to increased construction costs and qualified labor shortage. As the market is approaching a saturation point, 2018 may mark the start of a construction cooldown for the next few years.
On the other hand, carrying out a large-scale apartment project from the initial phases of planning to delivery rarely fits into a one-year timeframe. If we look at the combined delivery figures of 3-year periods, however, the past three years still top the output seen in three decades. Apartment construction has last peaked at 933K deliveries between 1983-1985 and is forecasted to reach an astonishing number of 910K deliveries by the end of 2018, the closest it’s come to that record-breaking performance ever since. Although the pace of construction has helped tremendously with supply, it’s still going to be a challenge for developers to keep up with the demand, taking into consideration the fact that the number of renters is on the rise.
The average rent is still increasing, despite witnessing a much-needed deceleration
Rent growth has followed a path of ups and downs since the recession, but prices have not decreased since 2010 at a national level. It seems that 2017 brought a touch of relief with rent prices starting to slightly hit the brakes.
However, the national average rent has already seen a 2.3% increase during the first six months of this year, and whether or not it will outpace 2017’s 3.5% uptick by the end of the year is up to the market’s reaction time, as the slightly narrower pipeline has the potential to blow even that little wind out of the sails of renters. One thing’s for certain: the number of renters has been on the increase in the past years, and it’s unlikely to start decreasing as long as home prices are shooting up faster than rents.
New York metro leads the way with the highest number of units expected to be delivered this year
Home to roughly 20 million people, the majority of them being renters, New York metro will add a total of 19,948 new apartments in 2018, slightly less than the 20,682 from a year before. Considering that the metro has become home to almost 46,000 new residents in the last year alone, the housing market has a lot to catch up to in terms of available supply.
Dallas-Forth Worth metro, on the other hand, having added over 146,000 more people to its population, is expected to up its apartment supply by 17,132 new units. The metro is second only to New York in terms of apartment construction, outpacing other metros like Denver and even Los Angeles and Chicago. Dallas metro has seen a growth in job opportunities, with more and more people relocating to the region and ultimately driving up rents. In Dallas alone, rents have increased by 3.2% year-over-year with renters paying a monthly amount of about $1,200.
Texan metros like Dallas, Houston, Austin and San Antonio stand out with a total of 37,000 new units. Houston metro is, however, expected to deliver only 7,646 new units this year, considerably less than it did in the past two years.
It’s worth pointing out that expensive markets such as San Francisco, Boston, and San Jose metro are adding a low supply of new apartments to their inventories. San Francisco is adding less than 7,000 new apartments while Boston is counting on about 5,000 new apartments to be built. Moreover, San Jose is planning on adding about 4,500 new units. Seeing these numbers, there’s not much hope that rent prices might drop any time soon.
Right at the bottom of the list, we have Philadelphia with 4,368 units expected for 2018 and Tampa with 4,176 units. The low number of deliveries in Tampa might be due to the loss of jobs following the recession.
Long Island City is New York’s hottest neighborhood for new apartments
Continuing its streak in apartment construction, Long Island City still leads among New York’s most active neighborhoods as 2,100 new units are projected to be delivered in LIC in 2018. The top 3 also includes Williamsburg with 1,932 new apartments, and Downtown Brooklyn with 1,118. Planning to build 986 new units this year, Fort Green is followed by East Harlem with 764 new deliveries, Hell’s Kitchen with 698 and Lincoln Square with 651. Crown Heights also made the list with 368 new units projected to be delivered in 2018.
Los Angeles adds a sizable chunk of over 4,000 new apartments to its inventory
The construction of new apartments in Los Angeles metro is expected to hit the 11,000 mark in 2018 –recording a 23% drop compared to the previous year. Developers in Los Angeles city alone are stepping up their game and planning to deliver 4,583 new apartments.
This comes as a response to the city’s high rent prices that have set off what we can call an affordable migration. Renters account for almost half of LA’s population and the current supply of apartments is simply not enough to help cool off rental prices. Unable to keep up with the rising rents, more and more people are leaving California and relocating to less expensive places in neighboring states.
As far as other cities within the metro are concerned, Anaheim is expected to add 946 new units while Glendale’s inventory will increase by 891 new deliveries.
Phoenix Metro: Phoenix, Tempe, and Chandler are the top three hottest markets for apartment construction
Besides affordable rent prices, those living in Phoenix metro have another reason to rejoice as developers are planning to build over 10,000 new apartments this year, 55% more than they did last year. The metro saw its population soar by 2% in the last year while job growth was also strong at 2.8%.
Home to employers like JP Morgan Chase, UPS or Santander Consumer USA, Phoenix is seeing a boost both in its job market, as well as in its apartment construction. The city is planning on adding 4,152 new units by the end of the year, an increase from last year when it only delivered 2,316 new apartments.
Construction volumes will reach 1,915 new apartments in Tempe, 1,075 in Chandler and 1,030 in Scottsdale. Peoria, Gilbert, Glendale, and Mesa are expected to add only around 400-500 new apartments each.
Austin Metro: Austin and Round Rock take the lead in apartment construction
As one of the cities with the most robust apartment construction in the country, Austin is adding an impressive number of 5,758 new apartments by the end of 2018. As a result of the 19% increase in apartment construction, rents in the area have gone up by a shy 0.2% in the last year. The sizeable supply of apartments is pushing landlords to offer concessions such as months of free rent.
Round Rock is planning to deliver 796 new apartments this year but construction in the area has dropped by 8% compared to last year while the average monthly rent increased by 1.3%.
Construction is reaching outstanding levels in both Denver metro and Sacramento metro
Upping its population by 1.3% in the last year, Denver metro is also boosting its apartment construction by a staggering 150% in 2018. The area is continuing the trend seen in recent years with the construction of 15,187 new apartments. The big increase in apartment construction is due to the fact that part of last year’s deliveries got pushed to 2018. In regards to this, Doug Ressler, senior analyst at Yardi Matrix added: “The latest employment numbers came in at 2.3% as Denver is experiencing a lack of construction workers for multifamily and competing with office developers for labor resources. This was combined with a 2017 Mid-year decline in occupancy from 95.8% overall to 94.9% at Year-end.
Construction-crazed Sacramento metro is hot on its heels, increasing its apartment supply by 143% in 2018 versus the previous year while New Orleans metro adds 85% more apartments.
Both Jacksonville metro and Phoenix metro are building over 50% more apartments this year compared to 2017. The metros are also among the top 10 with the highest population growth, therefore the increase in construction comes as good news for renters hoping to see prices cooling off.
As for what lies ahead at a national level, Ressler believes that since “the residential development pipeline has slowed, there won’t be as many new properties coming online. Vacancy is also increasing slightly because of the new apartment buildings coming online, particularly in the Sunbelt and the Southwest.”
2018’s Best and Worst Apartment Markets for New Deliveries
The table below contains new supply projected to come online in 2018, in 101 metropolitan areas across the U.S. The metros have been ranked from best to weakest in terms of number of new apartment completions, based on data estimates from Yardi Matrix. All metros containing less than 300 units or less than 2 properties have been eliminated from the ranking.
Source: RentCafe.com
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