In a recent Bloomberg’s BusinessWeek report, Celia Chen, an economist from West Chester, Pennsylvania’s Moody’s Analytics Inc., gave a prediction about new starts for 2012 that would make residential developers across the country happy. According to Chen, work will begin on 310,000 apartments and townhomes in 2012, a 74 percent jump from last year. Chen says she based her forecast on expectations for stronger employment and household growth for the year. In the same report, Bank of America’s senior economist, Michelle Meyer, predicted 260,000 starts for the year.
But as much as they want to, other housing analysts and stakeholders aren’t ready to fall in line behind Moody’s and Bank of America. Their predictions are “overly optimistic,” says Sharon Dworkin Bell, SVP of Multifamily and 50+ Housing at the NAHB. “We would love it if [Moody’s] was right, but developers still need capital to start projects,” she says.
The NAHB’s prediction is closer to 208,000 (for 2+) developments for the year, according to Bell, who says they base that number on a number of factors including local market forecasts and historical trends.
Ronald Witten, president of Dallas-based Witten Advisors, LLC, says he doesn’t expect multifamily starts to reach such a high volume in 2012 because of capital market constraints.
“Equity capital for new development pulled back substantially in the third quarter of 2011, and has loosened only modestly,” he says. “The combination of cautious equity and still-stringent construction loan underwriting by commercial banks should keep 2012 starts of rental apartments near 200,000 units, up from 150,000 units in 2011.”
Still, Chen remains confident in her prediction. “As more unemployed workers are able to find jobs, they will be able to create households and many will be young adults who will typically rent,” she says. “Additionally, mortgage lending will remain on the tight side, which will constrain homeownership. And many households have impaired credit after going delinquent or defaulting during this housing correction. “
Chen also says because the multifamily market is fairly well-balanced, rental vacancy rates are falling and close to their long term average. “Economic growth will strengthen even more in 2013 and 2014,” she says. “This job growth will create even greater demand for rental housing.”