Although some metro areas may have a lot of new supply coming through the pipeline, others are in desperate need for housing, experts say.
Toby Bozzuto, president of the Bozzuto Group, believes overbuilding in the largest six gateway markets is a short-term threat, but isn’t killing development plans for his company.
“A company like mine has to make decisions not based upon one week or one month or one year, but in five- to 10-year intervals,” he says. “We are taking this moment in time to be slightly contrarian and actually look for opportunities with the thesis that it takes between one and two and three or four years to develop these projects."
Greenbelt, Md.-based Bozzuto Companies has several large projects under construction in the Mid-Atlantic region, including in Washington, D.C.—one of the most talked-about markets when it comes to overbuilding and absorption.
“If I started something tomorrow morning, it wouldn’t even deliver for three or four more years,” he says. “So, we talk about intricacies in the finance market: You don’t know what is going to happen in the interest rate market and so on. But bottom line? Yes, I do think there is some overbuilding in the near term, but we are in the long-term business.”
Bozzuto and other panelists discussed the topic Monday at the Bipartisan Policy Center’s 2014 Housing Summit.
Michael Berman, who worked as a senior adviser to HUD Secretary Shaun Donovan, argues the issue of overbuilding isn’t as threatening as it’s been made out to be because there are many markets nationally that are in desperate need of housing. The San Francisco area is unique in the sense that although it’s a tight for market-rate housing, there isn’t enough overall housing, Berman says.
“When you ask about overbuilding, I would argue that most of the building that I see going on [is not] B- or C+ quality products,” he says. “And the affordability is an issue in places like San Francisco where folks between say [60 percent or 70 and 80 percent of area median income], there’s nothing available for them.”
And the need for affordable housing is driving demand in areas similar to San Francisco.
“We have salaries that have been pretty stagnant and rents that are skyrocketing in so many markets because of undersupply that we have experienced for three or four years,” he says.
Lindsay Machak is an Associate Editor for Multifamily Executive. Connect with her on Twitter @LMachak.