Apartment Construction At A 10-Year High – Over 320K Units Projected To Hit The Market by RENTCafé
The U.S. apartment market is booming, and we’re not only talking about rental rates. In fact, according to our RENTCafé report, more than 320,000 new apartments in large buildings (50+ units) are expected to be completed in the nation this year; that’s a 50% increase compared to 2015.
Here are some of our main findings:
- Texas leads apartment construction – approx. 70,000 units are projected to be delivered in 2016 in the Lone Star’s 4 largest metros
- Trailing Houston and Dallas is the New York metro area with 21,000 apartments estimated to be completed this year
- San Francisco’s housing shortage may ease up with nearly 9,500 new units expected to hit the market; that’s a 126% increase compared to 2015’s completions.
- One-bedroom apartments make up the biggest chunk (51%) of the rental stock projected to come online this year, followed by 2-beds (37.5%).
Intense Renter Demand, Favorable Demographics Drive Apartment Construction to Record Highs
As more and more people turn to renting – either by necessity, deterred from buying by increasing homeownership costs, or by choice as renting is more often associated with a flexible lifestyle – developers are determined to capitalize on this growing demand and fill skylines across the nation with construction cranes.
The rental market is firing on all cylinders, with over 1,400 large-scale projects under construction in the country’s biggest metros, our recent survey on the US apartment market shows. In the largest construction boom we’ve seen over the last decade, approx. 320,000 new apartments in 50+ unit buildings alone are expected to hit the market this year. That’s a whopping 50% increase from 2015 when approx. 200,000 units came online – and the highest point in 5 years of relentless inventory growth. While apartment construction was rather tame in the aftermath of the Great Recession, 2012 saw rental markets across the country shooting up again – prompted by an ever-growing renter pool as well as vigorous job growth – with completions reaching a peak in 2015 and then an all-time high in 2016.
To see where new development is concentrated and identify the country’s multifamily boom towns in 2016 (i.e. metros that will see their rental inventories grow the most in terms of completions volume), we’ve turned to data from our sister company, Yardi Matrix, and examined construction pipelines in the 50 largest US metros. Among the top 20 hottest metros for new apartment construction, the job-centric, millennial-magnet Texas hubs – Houston and Dallas – will see the largest number of new units added to their hungry rental markets in 2016.
Houston Leads the Pack as the U.S. Metro with the Most New Apartments to Hit the Market in 2016
Despite the weakening energy market, strong job gains in the leisure, hospitality, education, and healthcare sectors are keeping Houston’s job market vigorous, which in turn favors household formation.
Approx. 26,000 new apartments in 95 rental developments are projected to come online in the Greater Houston metro this year to meet the growing demand for rental housing. The largest apartment community to be completed in 2016 in Houston is Tate at Tanglewood with 431 units to be added to the Galleria/Uptown submarket, followed by Broadstone Energy Park, a 417-unit complex located less than a mile from Houston’s booming Energy Corridor. Several properties operate under the Broadstone brand across Greater Houston and they all strive to deliver an enhanced living experience with amenities such as social lounges, pet playgrounds, fitness centers and massage rooms, zen courtyards, and lap pools that most often complement luxurious interiors.
Overall, Texas leads apartment construction this year, with more than 69,000 units projected to be delivered in the Lone Star State’s 4 largest metros – Houston, DFW, Austin, and San Antonio; this represents 22% of the total estimated increase in inventory across the 50 largest US metros. Apartment demand is expected to remain strong as more and more people flock into the area. In fact, Texas also tops the list of the fastest-growing metro areas, according to new data from the U.S. Census Bureau. These 4 metros collectively added more people last year than any state in the country (approx. 412,000 new residents).
More Than 20,000 Units Slated to Come Online in both New York and Los Angeles Metros
Trailing the Houston and Dallas mega hubs is the New York metropolitan area* with an almost equally impressive number of new units: 21,000 apartments projected to be completed this year. Greater LA isn’t far behind with 20,000 units slated for completion, followed by Washington, D.C. with ~18,000 units.
Austin, Seattle, and the pearl of the Gold Coast – Miami – will each see their rental inventories expanding by more than 13,000 new units this year.
Rounding off our top 20 metros for new apartment deliveries list is the San Jose metro area, where a total of 5,800 new units in 23 properties are expected to be completed in 2016.
1-Bedroom Units Dominate 2016’s Apartment Completions
One-bedrooms make up the biggest chunk (51%) of the rental stock projected to come online this year*. Studios rank lowest on developers’ preferences when it comes to bedroom distribution, holding approx. 4.7% of the new rental inventory. 2-beds take 37.5% whereas 3+ beds represent 6.8% of 2016’s new supply.
*only properties displaying floor plan information have been taken into account for the ‘bedroom distribution’ calculation, approx. 65% of 2016’s planned deliveries.
Wave of New Construction Helps Rents Cool off in Some US cities
The low inventory levels and increased demand have been the main culprits for the staggering rent growth over the last year. But the plethora of new rental units coming online may finally turn the tables in the renters’ favor: where there’s choice, there’s competition and, in this case, competition translates into concessions, lower rents, and a more relaxed housing landscape in general.
While average rent prices are indeed at an all time high, the overheated rental market is starting to lose steam. Rent growth peaked at 6.3% at the end of 2014 but slowed to 5.6% in 2015, with a projected 4.4% increase by the end of 2016.
Some of the country’s most in-demand cities, including Denver, Houston, Washington, DC, and Boston, have already begun seeing the effects of the expanding rental inventory, posting some of the smallest Y-O-Y rent increases in June 2016. Amid accounts of rising rents that paint a bleak rental picture for renters on the West Coast, Washington, DC actually emerges as one of the country’s most stable markets.
Intensified construction activity over the last few years has kept the game of supply and demand in relative equilibrium, putting a drag on DC’s ever-growing rents. In fact, DC’s red hot rental market has been cooling down over the past year: at 3.5%, D.C.’s rent growth year-over-year is much lower than the national average (5.6%).