Analysts: No Oversupply of US Apartments

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Conventional wisdom suggests the recent surge in home sales is bad for the apartment market. As people move out of apartments to buy homes, apartment vacancies rise, the theory goes.

But that's not what's happening in the U.S., analysts said during the National Association of Real Estate Editors conference in Atlanta this week.

"Despite what we often hear, we are not at a point where we are overbuilt in the apartment industry," said Mark Obrinsky, vice president of research and chief economist of the National Multi-Housing Council

The NHMC estimates the market will need 300,000 to 400,000 new apartments meet current demand, Mr. Obrinsky said.

After a flurry of new construction early in the year, multi-family starts are on pace for an adjusted annual rate of 243,000 units, according to the National Association of Home Builders.

Greg Willett, head of research and analysis for MPF Research, told the NAREE audience there are about 150,000 apartments due for delivery this year with another 275,000 under construction.

"There is no question that we're not really in danger of overbuilding in most spots," Mr. Willett said

While some renters are returning to home ownership, the surge in home sales is not necessarily bad news for the apartment market.

 "Strong home sales generally mean a strong economy," Mr. Willett said.

The home ownership vs. renting equation is more complicated, with several unique demographic factors helping to drive demand for apartments in the current market, the analysts say.

"The number of young adults living at home is higher than it's ever been," Mr. Obrinsky said. "We see more demand coming from this group as the economy approves."

The number of single people in the U.S. is also significantly larger than historic levels, providing a large population of potential renters, Mr. Willett notes.

On the supply side, the construction numbers don't tell the whole story, Mr. Obrinsky added. Each year 75,000 to 125,000 aging apartment units are destroyed, which is often not considered in the evaluation of the market..

"I don't feel like we're overbuilding," Mr. Obrinsky said.