Is Multifamily Supply Overtaking Demand? A New Twist to the Debate Emerges

Is Multifamily Supply Overtaking Demand? A New Twist to the Debate Emerges

By Erika Morphy via Globe St

The apartment industry has been worried about a bubble forming, and then bursting, in this asset class since the recession. A case can be–and will be in a moment–made that building in this sector is reaching a saturation point in some markets. On the other end of the spectrum a new argument has emerged: not only is a supply bubble not forming–but current development pipeline is not sufficient to meet the real demand for apartments.

Certainly the pieces are all in place for a bubble burst in apartments: after the flood of foreclosures from the recession, apartments were in high demand and short supply. Apartment REITs reliably posted high returns, attracting investment and developers, with an eye on the growing valuations and ever-strengthening fundamentals in this space, set out to build, build, build.

So far, though, demand for apartment space has been insatiable and able to blunt the growing supply. The reasons are well known: more stringent mortgage underwriting has made home ownership more difficult; young adults are not inclined to own homes anyway; there is a trend to urban living.

NAREIT has posited that shadow demand will continue to fuel this sector for years to come. As the job sector steadily improves, according to this theory, young adults will continue to emerge from their parents’ basements, seeking to form their own households.

Still, the question lingers. Is supply finally catching up to demand for multifamily assets?

One new report now says the answer is yes. According to new statistics from Axiometrics that were reported by SNL Financial in a note, new development activity poses risks for these markets.

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