As wealthier, higher educated people show a preference for renting, apartment construction follows them.
In spite of concerns about overbuilding, multifamily developers continue to plan new apartment projects in metro areas that have seen the influx of thousands of new apartment units in recent years.
“Developers still really like the 15 or so metros that have accounted for half the country’s completions,” says Greg Willett, chief economist for RealPage Inc., a provider of property management software and services. “That makes sense. The apartments that have been built to date generally have been readily absorbed and are generating very high rents.”
Demand Still Strong For Apartments
However, developers are becoming more cautious about building in top markets than they have been previously.
“Developers are more attuned to the pipeline than they were two years ago,” says John Sebree, Chicago-based director of the national multi housing group with brokerage firm Marcus & Millichap. “This late in the real estate cycle, the margin for error is probably a little less.”
Demand for housing of all types, including apartments, remains verystrong in the U.S. compared to the number of available housing units. The number of households in the U.S. is expected to grow by 1.56 million in 2019. But developers are only expected to increase the total number of housing units by 1.2 million. That figure includes single-family homes, rental apartments and all other types of housing.
“We are still not satisfying the demand,” says Sebree.
Education and Growth Fuel the Top Markets for Development
The top metro areas for apartment construction include both expensive cities with highly educated workforces and less expensive towns that are growing quickly. “Ideally, markets combine both education and fast growth, but highly-educated areas tend to be too expensive to warrant fast growth,” says Andrew Rybczynski, a senior consultant with research firm the CoStar Group.
For areas where 10 percent to 20 percent of the population was college educated in 2010, there was a 4 percent increase in units since 2010. Areas where 30 percent to 40 percent of the population had college degrees saw a 14 percent increase. Areas with 50 percent to 60 percent of the population being college educated experienced a 22 percent increase in new apartment units. Simple population growth is also fueling new construction. “The fastest growth currently is in low-cost, and poorly educated markets,” says Rybczynski.
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