Multifamily's Momentum Is Shifting

The U.S. apartment boom has been going on for almost a decade, but tight labor and growing construction costs are slowing down the multifamily sector's growth, potentially signaling future rent hikes.

Apartment hunters should expect less new construction through 2020, as building permits have dropped every month this year since March. Industry analysts say that the slowdown will help balance the market's supply, prompting landlords to raise rents and faster in 2019. In hot markets in the West Coast, Essex Property Trust CEO Michael Schall anticipates, "With housing demand continuing to exceed supply, we believe that housing shortages on the West Coast will continue,” while Barbara Byrne Denham, senior economist at property consultancy Reis, tells Realtor.com, rising costs and fears about future job growth which is essential to apartment demand has cut into permitting growth.

Developers raced to put up new multifamily buildings after the recession in 2009, a scramble generated by the dearth of investment during the downturn and the growing demand for rental properties after the housing bust. Rents steadily rose on stronger demand from young people getting their first places and consumers who couldn’t obtain financing to purchase homes. But that growth has slowed over the last couple of years.

In 2011, developers completed 129,900 units in buildings with at least five units, according to the Census Bureau. Completed properties with at least five units have risen each year since then, and developers added almost 347,000 units in 2017. As supply has grown, rent growth has weakened, hitting 2.9 percent nationally in the third quarter compared with more than 5 percent three years earlier, according to real-estate analytics firm RealPage Inc.

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