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Multifamily set to recover, yet is restrained by tight lending

Multifamily on path to recovery

The apartment sector is a bright spot in the overall housing market leading the industry’s path to recovery. However, the lack of credit to finance the development of new apartments is likely to cause a supply and demand imbalance, said panelists during a press conference held today at the National Association of Home Builders (NAHB) International Builders’ Show (IBS) in Orlando, Fla.

NAHB says that multifamily housing demand will outpace current capacity to finance production and could put the brakes on the recovering industry. “While we are forecasting construction of 208,000 multifamily residences in 2012, that figure is well below the 350,000 units a year that is needed to maintain balance in the market,” said Sharon Dworkin Bell, NAHB senior vice president for multifamily and 50+ housing. “As the economy improves and first-time job entrants find employment, the need for apartments will continue to increase.”

The multifamily market suffered a serious slowdown in production from 2008–2010, notes the NAHB, causing an inadequate supply of new multifamily rentals. “We have one of the largest young adult populations entering the job market today,” said Ron Witten, president of the market research firm Witten Advisors that works with multifamily developers. “However, as an industry, we can’t keep up with this demand right now. This is likely to put inflationary pressure on rents, resulting in higher rents for consumers,” Witten cautioned reporters and other industry representatives attending the press conference.

Developer W. Dean Henry, president of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB’s Multifamily Leadership Board, said he sees credit restrictions affecting recovery. “Capital is limited in this current market, and developers are having a difficult time obtaining the credit needed to finance the development of new apartments,” said Henry. “Credit restrictions are so tight that even developers with a strong balance sheet and reputation are having difficulty.”

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Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

30 Comments

30 Comments

  1. Jeff Brown

    February 10, 2012 at 12:49 pm

    This is precisely why those who're concentrating on 2-4 unit properties are reaping the benefits of both cash on cash return and, if it ever really blesses us with its presence again, appreciation. The supply/demand curve has stacked the deck in favor of the smaller multi-family properties.

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