April 26, 2018

Apartment Growth Stunted by Financing Woes

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Apartment Growth Stunted by Financing Woes

A slowdown in apartment development is sparking fears of how it will affect supply and causing some to worry that the recovery in the apartment market is approaching its end, according to a recent housing survey.

"After four years of almost continuous improvement across all indicators, apartment markets have taken a small step back," says Mark Obrinsky, vice president of research and chief economist at the National Multi Housing Council. "Conditions cannot continue to improve indefinitely, and new development is at least somewhat constrained by available capital, though more on the equity than the debt side."

Thirty-four percent of respondents to NMHC's quarterly survey say they believe both equity and debt financing are widely available, but 43 percent say equity financing for new development is constrained.

“Sluggish indices tracking debt and equity financing suggested that apartment company executives are seeing a constraint of capital in the market, especially equity financing for new development projects,” the CoStar Group reports.

The average annual number of apartment units delivered in the top markets between 2014 and 2017 is expected to surpass the same figure between 2003 and 2007 by 10 to 15 percent. 

“It is true that as the economy recovers, faster household formation should create demand to occupy the new units,” says Luis Mejia, CoStar's director of U.S. Research, Multifamily. “But relatively easy apartment financing and prolonged developer optimism have created a supply wave that could adversely affect rents and vacancies, even in places where today’s economics and demographics are apparently favorable.”

Source: “Apt. Survey: Financing Availability Putting a Brake On Development,” CoStar Group (Oct. 22, 2013)

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