We have not seen a multifamily construction cycle like the current one since the early to mid-’80s, when annual inventory growth got as high as 4.4%. By comparison the recent peak of 2.3% in 2015 seems somewhat tame. Regardless, there is a lot of building going on, in particular at the top end of the market, and while no one is saying that we need another luxury apartment building in many of America’s cities, we do desperately need more housing, per Exhibit 1.
This chart shows when the change in households (the blue bars) has been greater than all construction (the combined shaded areas), illustrating periods when we are creating more households than we are houses. How is that possible with multifamily construction (gray shaded area) increasing steadily since 2011 and now growing at a rate not seen in 30 years? It’s the result of the dramatic decline in single-family construction (shaded in orange), which fell abruptly in 2007.
As single-family construction slowly gets back on track it will likely be the relief valve that takes some of the steam out of apartment demand, and the “rent forever” paradigm will ultimately be proved false. This is especially true as Millennials, with a current median age of 27, begin to hit their 30s and start having families. Nationally, the median age of a first-time homebuyer is 33, so it’s a good bet that as single-family home construction gets back to its historical norm the demand will be there to meet it, to the detriment of apartment owners.