Apartment Construction in 2019 Marks Second Year of Slowing Trend, with DFW Metro Surpassing New York in New Completions

Article originally posted on HERE on September 9, 2019

Highlights:

  • Apartment construction slows down compared to last year, from 326,000 new deliveries in 2018 to a projection of under 300,000 in 2019.
  • Construction has been thriving in the last decade at 2.3M, but it’s no match for the impressive levels seen in the ’70s and ’80s.
  • New York metro is dethroned by DFW metro and Seattle metro in terms of projected apartments for this year.

Having exceeded expectations last year, apartment construction across the U.S. is projected to continue slowing down in 2019. According to Yardi Matrix market data, there will be an estimated 299,442 new units forecasted to be delivered this year. This marks a significant drop of 8.2% compared to 2018 when the total number of deliveries was 326,240, almost matching 2017’s 9-year peak of 331,765 new units.

Despite growing demand across the U.S., apartment construction started to face some challenges beginning with 2018. High construction costs and a narrow pool of skilled labor are just a few of the factors hindering the development of new apartment units.

2.34M apartment deliveries in the last decade, unparalleled growth since the ’80s

This decade’s much-touted apartment boom ends with a total of 2.34 million new apartments, still below the impressive construction levels of the ’70s and ’80s. In the ‘70s, close to 3M new apartments were built, followed by the ’80s with 2.64M units when the apartment market started witnessing a slowdown that continued in the following decade. In fact, between 1990 and 1999, apartment deliveries amounted to only 1.6M, but started to pick up speed in the ‘00s.
According to Tara Jeffcoat, senior research analyst at Yardi Matrix: “Rising construction costs and a tight labor supply certainly contribute to a flattening and decline of expected completions, but 2019 is part of a larger trend of developers gearing up for next cycle. Although completions peaked in 2017, there is a significant number of prospective properties in the pipeline.”

This decade (2010-2019) saw the highest number of new units delivered since the ’80s – 2.34M, and that’s mainly due to developers speeding up construction starting with 2015.

Rent growth is slowing down after picking up speed last year

Zigzagging since 2010, the average rent growth has hit the brakes in the last 6 months, witnessing a 2.7% increase since 2018 when it went up by 3.7%. The glut of new apartments built in the previous years could be one of the reasons for this slowdown, taking the wind out of rent increases.

The influence of new deliveries on rent growth is no new occurrence, as whenever supply was abundant, rent growth has weakened. A relevant example is the one between 2009-2011, when apartment construction hit its lowest numbers (decreasing from 228,300 to 110,300) while rent growth skyrocketed from -3.7% to 2.9%.

DFW metro surpasses Seattle and New York metros in the race for more apartment deliveries

This year, Dallas-Fort Worth metro leads with a total of 22,196 new units expected to be built, which will prove beneficial considering the 131,800 new residents that the metro added between 2017 and 2018 (based on U.S. Census estimates).

The runner-up Seattle metro, is also doing fairly well with a projected 13,682 units to be built this year, closely followed by last year’s front-runner, New York metro, which is planning to add 13,418 new units. Having built an impressive number of apartments in 2018, New York metro is expected to cool off a bit in 2019.

Find the complete article here: https://www.rentcafe.com/blog/rental-market/apartment-construction-2019/

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