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The Rent Cafe reports Apartment Construction Is Expected to Slow Down in 2018 After a 6-Year Upward Streak

Following an almost decade-long period of vigorous expansion, the growth of the U.S. renter population has reached a plateau in 2016. Construction had continued to break records – until this year, when Yardi Matrix market data suggests that the total number of new completions is going to remain far below the 300K mark.

Compared to 2017 when the number of new deliveries reached an all-time high mark in the last 20 years, 2018 will see about 34,900 less deliveries ready to hit the market. The amount of new construction has followed a fast-ascending trend in the past 6 years, but the trend is estimated to change course this year. 2017 deliveries represented a new post-recession high, although actual apartment deliveries last year came short of initial estimates in many metros, due to increased construction costs and qualified labor shortage. As the market is approaching a saturation point, 2018 may mark the start of a construction cooldown for the next few years.

Three-Year Totals

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Apartment construction has last peaked at 933K deliveries between 1983-1985 and is forecasted to reach an astonishing number of 910K deliveries by the end of 2018, the closest it’s come to that record-breaking performance ever since.

Rents Still Increasing

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The national average rent has already seen a 2.3% increase during the first six months of this year, and whether or not it will outpace 2017’s 3.5% uptick by the end of the year is up to the market’s reaction time, as the slightly narrower pipeline has the potential to blow even that little wind out of the sails of renters. One thing’s for certain: the number of renters has been on the increase in the past years, and it’s unlikely to start decreasing as long as home prices are shooting up faster than rents.

Top Metro Areas

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Expensive markets such as San Francisco, Boston, and San Jose metro are adding a low supply of new apartments to their inventories. San Francisco is adding less than 7,000 new apartments while Boston is counting on about 5,000 new apartments to be built. Moreover, San Jose is planning on adding about 4,500 new units. Seeing these numbers, there’s not much hope that rent prices might drop any time soon.

Renters Become Recent Majority Population in 22 Major Cities

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The preceding two charts from Renters Became the Majority Population in 22 Big US Cities.

Trend Towards Renting

It's easy to understand the trend increase in renters. Millennials entering the workforce cannot afford homes.

Yet, saving up for a home is next to impossible for all but a small percentage of highly-paid workers.

Pent-Up Demand

Every month, Lawrence Yun, NAR spokesman complains about lack of supply and pent-up demand. This month Yun complained "The root cause [of slow sales] is without a doubt the severe housing shortage that is not releasing its grip on the nation's housing market.

In reality, there is no housing shortage. Rather, there is a shortage of houses that people can afford. Builders don't build more houses because people cannot afford them.

Yun misses the mark by a mile on the root cause of his alleged crisis. The root cause of this mess is Fed policy.

The Fed's expansionary policies bailed out the banks and created numerous asset bubbles. The economists do not properly factor rising asset prices, especially housing into there consumer price inflation (CPI) models.

Related Articles

  1. Existing Home Sales Decline Third Month Despite Rising Inventory
  2. Real Hourly Earnings Decline YoY for Production Workers, Flat for All Employees
  3. Housing Starts Unexpectedly Plunge 12.3% in June, Permits Down 2.2%

In point number one above I commented "It's looking increasingly likely that housing has peaked this cycle."

Research from the Rent Cafe adds another angle on my statement.

Mike "Mish" Shedlock