(LAS VEGAS, NV) -- According to industry experts speaking at a press conference today at the National Association of Home Builders' International Builders' Show in Las Vegas, a severe shortage of apartments is likely to result from the anemic pace of multifamily rental property construction.
New multifamily construction has been crippled by the credit crisis, leaving the industry unable to gear up for the increased need for market-rate and affordable apartments that is expected to accompany economic recovery beginning next year.
"We desperately need lenders to begin financing apartment communities again," said NAHB Chief Economist David Crowe. "The vacancy rate for apartments is elevated now, but as the economy recovers and jobs return, the people who've been doubling up with relatives and friends will want a place of their own - and there may not be one available."
Industry leaders predict that with the two- to three-year timeline required to build apartment communities, there will be a severe shortage of apartments in the near future - at the same time that there will likely be a huge need for them, according to demographers. A large number of Generation Y professionals and newly formed households -for whom multifamily is often the most attractive option - are expected to enter the housing market soon. They are likely to find fewer market-rate and affordable rental units to choose from, and higher rents due to increased demand.
Jerry Durkin, Managing Partner of Wood Partners, Atlanta, a member of NAHB's Multifamily Leadership Board, said "Lack of debt and equity is crippling the private companies' ability to start new development. Over the last ten years, our company built about 3,500 apartment and condo units a year. In 2009, we closed on one development deal, in December."
"At its peak, our firm developed between 30 and 35 communities a year," said Michael Costa, President/CEO of MacFarlane Costa Housing Partners, which develops affordable workforce housing, and a member of NAHB's Multifamily Leadership Board. "But this year we have four small apartment communities under construction, and about the same number pending for 2010." The communities are all being built through federally-subsidized programs such as the low-income housing tax credit program.
Industry experts expect demand to outstrip current supply by mid-2011, with increasing shortages of rental housing through 2014. This is very likely to increase market-rate rents as much as 8 to 10 percent per year in 2011 and 2012, and by 4 to 7 percent per year thereafter through 2015.
Durkin added, "We hope to start three developments this year. None of the debt will come from our traditional sources. We hope to acquire four existing communities this year. We have interest from an equity provider for this, and construction debt is not needed."