Demand is Outstripping Supply in Multifamily Housing

Let’s go with the bottom line first: Supply is not keeping up with demand for housing in almost all parts of the country. In the 12 months ending May 2014, the U.S. issued building permits (both single and multifamily) for 940,031 total dwelling units. These consisted of 566,983 singe family units, 23,924 dwelling units in structures containing from two to four dwellings, and 349,124 dwelling units in structures containing five or more dwellings.

In that same period, the U.S. added 2.495 million net new additional jobs. This works out to 2.65 net new jobs per new dwelling unit. Normally, you need from 1.25 to 1.5 net new jobs per new dwelling. The market could literally double construction and not necessarily over build, assuming that we built the proper types of properties in correct locations. Already it appears that the District of Columbia is just entering the overbuild phase. I expect other markets to do likewise.

As a result, many markets are facing what is likely maximum occupancy in rental housing. Axiometrics, a Dallas-based leading apartment market research firm, reports that the U.S. apartment occupancy rate hit an average 95 percent in Q2 2014, the best showing since Q1 2001 at 95.6 percent. Accordingly, rents increased 2.4 percent.

Axiometrics generated a list of the 10 highest-occupancy multifamily markets. Four of the ten were located in California, which faces a very difficult entitlement and permitting process. All ten have apartment occupancy rates greater than 96 percent.

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To read MultiFamily Executive’s report on the current state of apartments, click

Investors, however, do not care nearly as much about which markets are maxed out today, but rather, what are the up and coming markets that will become even hotter. Just like Wayne Gretzky, the success is to skate to where the puck is going to be, not where it is at today.

Sperry Van Ness (SVN) has created such a list.

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SVN does caution investors to be very aware of inventory levels, noting that some markets will face declining rents due to pressure from new construction.

To view the full article from MultiFamily Executive, click

In almost all markets nationwide, expect rents to continue to escalate. Do, however, keep a keen watch on new construction.


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