Lack of Capital Could Restrain a Recovering Multifamily Market

Following “a banner year for the multifamily market” in 2012, according to the National Association of Home Builders, another good year is ahead—if capital becomes available.

NAHB data show the multifamily market “has recovered substantially” since the end of 2010, growing to about 70% of what is considered “a sustainable level.”

While the industry is going strong and most forecasts are positive, some insiders worry whether multifamily construction and rehabilitation projects will attract enough investment capital to further increase production.

The fact that developers see several difficulties in reaching their production goals, says Michael Costa, president and CEO of Highridge Costa Housing Partner LLC in Gardena, Calif., indicates there still are challenges to a full recovery.

“A lack of capital is restraining the ability of developers” in many markets from building apartment communities for residents of all income levels, he said, while construction costs, both for building materials and labor, keep going up.

Panelists at the NAHB International Builders Show in Las Vegas, however, credited the multifamily sector for leading the way in the recovery of the overall housing market.

Reasons for optimism going forward, said Lance Swank, president of The Sterling Group in Mishawaka, Ind., include new household formations that will generate demand, “especially in the market-rate rental segment," which has been affected by “a change in attitude toward renting” as housing that allows people to pursue job opportunities in different states.

Many of these insiders, including the NAHB, expect continued growth over the next several years.

NAHB’s chief economist David Crowe forecasts “further steady growth in the rate of multifamily production," which is expected to lead to the construction of 299,000 new multifamily residences in 2013.

Nonetheless, Crowe recognized the improvement, compared to a few years ago, “is still well below the 350,000 units that are required to keep supply and demand in balance."