NAHB Panel: Financing Woes Will Hurt Apartment Supply

A "severe shortage" of new product is shaping up in the apartment market, just in time for an expected major pickup in demand. Industry experts predicted at the National Association of Home Builders convention in Las Vegas that because of the inability of developers to find financing, demand will be begin to outstrip supply by mid-2011. That, coupled with the long, two to three-year lead-time it takes to build a multifamily structure, will lead to increasing shortages of rental and condo properties through 2014. The shortfall — only 80,000 units will be built this year vs. the 300,000 or so that are needed — will grow during a period of increased demand as the economy continues to improve and immigration begins anew. "We desperately need lenders to begin financing apartment communities again," said NAHB chief economist David Crowe. "The vacancy rate is elevated now, but as the economy recovers and jobs return, people who've been doubling up with friends and relatives will want a place of their own." As a result of the impending shortage, the NAHB is forecasting that market rents are likely to rise by 8% to 10% in 2011 and 2012 and 4% to 7% annually thereafter through 2015. Jerry Durkin, managing partner of Woods Partners, an Atlanta-based firm which built an average of 3,600 units annually over the last 10 years but started only 150 last year — and that was in December — said the lack of debt and equity financing is crippling companies like his. Until lenders loosen up, his company is focusing more on buying properties and less on developing, he said. Woods Partners also is "virtually out of the condo business." The lack of financing "has really slowed the industry down," agreed Michael Costa, president of MacFarlane Costa Housing Partners, which at its peak started 30-35 workforce properties a year as either the developer or in a joint venture but expects to break ground on just four in 2010.