This bit especially caught our eye:
There has been a lot of talk of increasing household formation, but what some fail to realize is that household formation can be a single family owner-occupied home or an occupied rental unit [emphasis added]. Younger Americans are in fact moving out of their parents’ basements, but many are moving into rental units, and that is also a formed household. (Read More: The Housing Recovery Is Getting Real)
Should investors be concerned about overbuilding in the apartment sector, given these huge jumps in starts coupled with the fledgling single family housing recovery? No.
“We’ve had four years of zero supply,” said David Toti of Cantor Fitzgerald. “There’s still a groundswell of demand. The shift from owning to renting is still moving in favor of the renter.”
Multifamily starts are now above 10-year averages. In fact they officially crossed them in October, but home ownership levels continue to contract.
Okay, but we need to keep in mind local conditions. There can be too many multifamily projects planned for a given area. We can’t just think in national terms.
Also, as part of considering actual starts for the research area (local market), one should factor in planned and actual single-family rentals. At some point, market saturation can be reached for such rentals, which can then become oversupplied where they begin to reduce rent rates generally and draw away renters from multifamily projects. The reverse can also be true. Multifamily can pull from single-family and 2-4 unit properties.
Just some types of the many questions/factors to consider:
- What are the given demographics of the area? What is the rate of change in unemployment and in which direction?
- What are the economic prospects for the market?
- Is it a one-company town? What does the future for the particular industry hold in store?
- What are the regional, national, international, and global macroeconomic trends and possibilities that may, already do, or will bear on the local market if certain events take place?
- What’s the likelihood for each such event?
- What types of apartments should be built? What suits that market, the demographics, etc.?
Update: Here’s a link to an article that helps increase one’s thinking on some of the subjects we raised in this brief article: “Economist: 2013 another year of transition for real estate.”