Sun Belt Metros Lead Multifamily Construction

Famous robber Willie Sutton said he never provided the famous answer to the question of why he robbed banks: “That’s where the money is.” Some reporter apparently made it up. Still, a great line.

At its heart there is a pithy explanation of an economic truth: supply will often chase demand. But people in CRE don’t need an official explanation of why developers will often work in the same hot areas. That’s where businesses and people want buildings. And, in short, that’s why drives Apartment List’s observation that Sun Belt metros have lead the apartment construction boom so far this year.

The site had noted in a previous report a “rapid cooldown” in multifamily rentals with currently “currently more multifamily units under construction than at any point since 1970” and the potential that, with the new inventory, “property owners could be competing for renters to fill their units, a marked change from the prevailing conditions of the past two years, in which renters have been competing for a limited supply of available inventory.”

The new report suggests that “even if demand begins to bounce back this year, it remains likely that rent growth in 2023 will be modest at best … because there are currently a record number of new apartment units under construction, and this influx of new supply should keep prices in check.”

What Apartment List noted was “wide variation in both the relative levels of building activity and in their trends over time.” For example, big coastal cities — New York City, Boston, San Francisco, and Los Angeles, to mention a few — haven’t built nearly enough multifamily housing over the last ten years to keep pace with demand. Too much demand and too little supply has meant an affordability crisis.