By Erica Christoffer, Multimedia Web Producer, REALTOR® Magazine
Developers of multifamily homes should be relishing in the fact that demand is incredibly strong. But in reality, developers are struggling to build new apartments because financing is so hard to come by.
The National Association of Home Builders is forecasting the construction of 208,000 multifamily residences in 2012, which is well below the 350,000 units needed to maintain balance in the market, according to Sharon Dworkin Bell, NAHB senior vice president for multifamily and 50-plus housing.
Bell, who spoke on a panel during the NAHB International Builders’ Show in Orlando last week, said that the demand for new apartments will only continue to grow as the economy improves and job seekers find employment.
What’s more, the young adult population entering the job market today is one of the largest in U.S. history, which is creating even more demand for multifamily real estate, said Ron Witten, president of Witten Advisors, a market research firm that works with multifamily developers.
“As an industry, we can’t keep up with this demand right now. This is likely to put inflationary pressure on rents, resulting in higher rents for consumers,” Witten said.
The multifamily market suffered a serious slowdown in production from 2008 to 2010, and now the lack of credit to finance the development of new apartments is likely to cause a supply and demand imbalance, according to the NAHB panelists.
“Credit restrictions are so tight that even developers with a strong balance sheet and reputation are having difficulty,” said developer W. Dean Henry, president of Legacy Partners Residential in Foster City, Calif., and chair of NAHB’s Multifamily Leadership Board.
Federal Reserve Chair Ben Bernanke also touched on credit issues during his speech at the International Builders’ Show Friday. He called on lenders to “find ways to maintain prudent lending standards while serving creditworthy borrowers.”
In a market report released in late 2011, NAR’s Chief Economist Lawrence Yun warned that if new multifamily construction doesn’t ramp up, the rise in rent costs could potentially approach 7 percent over the next two years. This creates another obstacle for renters trying to save for a downpayment to purchase a home.
In fact, between 2001 and 2009 the number of renters paying more than 30 percent of their incomes for rent and tenant-paid utilities jumped from 41.2 percent to 48.7 percent, and those paying more than half their incomes for housing climbed from 20.7 percent to 26.1 percent, according to a report released last summer by Harvard University’s Joint Center for Housing studies.
Overall, the implication of multifamily housing demand outpacing production is a continued delay of the housing recovery.