Lack of construction could create apartment shortages


A dramatic decline in U.S. apartment construction could lead to a shortage of rental housing in the years ahead.

Financing for new projects is so hard to come by that developers are expected to start less than a third of the rental units they build on average each year – only about 87,000 units -- in 2010. And the outlook for 2011 isn’t much better, housing analysts said.

“We will be facing a severe shortage of apartments in the next few years, which will increase the cost of housing for consumers,” Sharon Dworkin Bell, a senior staff vice president of the National Association of Home Builders, said at this week's industry convention in Las Vegas. “We believe we should have 300,000 starts every year to have a stable market.”

With the credit crunch, that’s not likely in the foreseeable future. And renters could feel the squeeze when the economy rebounds, analysts warn.

“We have a combination of limited supply coming on and increased demand when the economy recovers,” Bell said. “People will move out of their parents house and leave roommates. They will want to live on their own.”

Michael Costa, a partner in McFarlane Costa Housing Partners of California, said that some point a lack of rental units will take a bite out of consumers' pocketbooks.

“We are predicting now we may see upwards of double-digit rent increases,” he said.

His firm, which typically starts between 30 and 35 affordable rental communities nationwide each year, has just four projects in the works.

The slowdown has been even sharper for developer Jerry Durkin, whose Wood Partners builds rental units across the country, including several recent projects in the Dallas area.

In 2006, Atlanta-based Wood Partners started about 6,500 units.

“We closed one start in 2009 – a 150-unit deal,” Durkin said. “We would forecast this year that we might do three project starts.

“I don’t know how 2011 ramps up unless capital frees up,” he said. “Most of the traditional debt providers are on the sidelines.”

Apartment starts have virtually stopped in the Dallas-Fort Worth area, which in the last couple of years has been one of the country’s top rental housing construction markets.

More than 11,000 apartments were under construction in North Texas at the start of 2010.

Because of the large amount of new rental product on the market in the D-FW area, rents have been falling and vacancies increasing.

The same is true in other U.S. markets, which makes apartment analyst Greg Willett of MPF Research skeptical of a predicted shortage.

“To get back to an essentially full occupancy rate of about 95 percent, we’ve got to absorb about 600,000 apartments nationally and about 30,000 units in Dallas-Fort Worth,” Willett said. “The builders are overestimating the number of kids in the basement” who will move out of their parents’ homes when the economy rebounds.

Source: Dallas Morning News, Steve Brown