Apartment construction across the country has more than tripled since 2009. Last year developers started more than 350,000 multifamily housing units nationwide.
Analysts say that apartment construction increases should dwindle in the next two years. And a slowdown in Texas’ economy could play a part.
“My forecast is for a leveling — not a lot more growth,” said Dave Crowe, chief economist for the National Association of Home Builders, which is holding its annual meeting this week in Las Vegas. “We are at the level that can be sustained by the demand.”
Apartments accounted for about a third of total U.S. home construction in 2014.
In North Texas, the share was even higher. At the end of the year, more than 30,000 apartments were being built in the Dallas-Fort Worth area compared with about 26,000 single-family home starts in the area in 2014.
D-FW ranks fourth nationally for total apartment building permits.
Crowe said apartment construction is peaking because of construction constraints and a shift by some renters into home buying.house construction blueprint
“We are starting to see some of the older millennials moving to homeownership,” he said.
During recent years in most major cities, apartments have captured a larger than normal share of new households.
“Whatever the job growth has been, all of the newly formed households have become renters,” Crowe said.
He said that as renter’s age, they are more inclined to think about homeownership.
“They have expressed that as their ultimate desire,” Crowe said. “As they sustain some stability in their incomes and jobs, they will buy.”
‘Where we need to be’
Multifamily home starts rose by 16 percent in 2014 to about 352,000 units, based in large part on the large renter demand.
“I’m not expecting a significant amount of growth in 2015,” Crowe said. “We are where we need to be.”
Dallas-based apartment analyst Ron Witten with Witten Advisors thinks that the current apartment building boom around the country has peaked.
“We expect rental apartment starts to slow down slightly late this year, maybe off 5 percent from 2014,” Witten said.
“Fundamentals are still solid, but rising costs are shrinking development returns, which will make some proposed projects uneconomic.”
MPF Research is forecasting a slight drop in apartment building, too.
“We are calling for a slight pullback of 5 percent to 10 percent,” said Greg Willett, vice president with the Carrollton-based apartment consultant. “That really reflects expectations for Texas.
“We’re calling for a big drop in activity in Houston and mildly smaller start figures across D-FW, Austin and San Antonio,” Willett said. “Since Texas accounts for about 20 percent of the nation’s building in this development cycle, it would take big increases in late-recovery spots like Atlanta, Phoenix, Riverside and Las Vegas to completely counter less activity in the Texas markets.”
Projects on hold
While the drop in Dallas apartment building has more to do with higher construction and land costs, in Houston the dramatic fall in oil prices and layoffs by energy firms are reducing development.
Houston-based apartment architect Sanford Steinberg said he’s already seeing the impact of the energy sector pullback.
“Projects are being put on hold,” Steinberg said. “They are not killing the project but putting them on hold.
“In the last few years we have been going crazy building multifamily housing, not just in Houston but all over the country,” he said. “We could use a little slowdown right now.”
Crowe said that while construction is leveling, he’s still watching to see that developers don’t get too far ahead of tenant leasing.
“I worry about the multifamily sector overbuilding,” he said. “It’s the one residential sector that has the greatest access to credit.
“There is a history of builders building more because they can get credit than because they can fill up the units.”