Builders zone in on apartments as renters continue to pay big bucks…

CNN Money says that, “Home building spiked up in November to the strongest level in almost two years, as record-low mortgage rates and a surge in apartment and condo construction lifted activity” (see article). What’s perhaps surprising about this trend is that much of this building is focused on apartments.

With the current job market and mortgage difficulties, many are looking to rent. As more renters sell their homes or simply choose not to buy in the first place, rents are skyrocketing. This is not news to anyone in the Bay area, whose rents continue to rise and rental applications flood in to landlords.

For their part, builders are looking to take advantage of this trend, with the Washington Post noting these stats (see article):

— Builders should start at least 600,000 homes this year. That’s up from 587,000 last year and 554,000 in 2009 — the worst year on record. In a healthy market, economists say, about 1.2 million homes are started each year.

— The pace of apartment construction has soared. About 175,000 will be started this year, also roughly half the number in a healthy economy. But it’s far more than the 97,000 apartments begun in 2009.

— Single-family home construction, which accounts for about 70 percent of the housing industry, has essentially stalled for three years. This year will probably turn out to be the worst in the half-century records have been kept.

For builders, apartments are simply a better option; “It’s not as easy to get a home as it used to be,” says Rex Jensen, chief executive of the company developing a project in Fayetteville, North Carolina in the Wall Street Journal. “There are credit issues for buyers,” he says, “Also, from an infrastructure standpoint, it’s cheaper to invest in an apartment building than in a sprawling subdivision” (see article).

As builders struggle to keep up with renter demands, it is inevitable that there will be some lag, as there was with new construction a few years ago. Renters will have to wait for projects to be funded and completed before moving in so that the rental shortage will continue to lead to higher rents than we’ve seen in some time and more applications than apartments. And while some worry about over-saturation of apartment buildings, it looks like this niche construction boom is going to keep going strong until these hopeful renters find homes.

Author: kimhuntkw

We specialize in Real Estate in the Pleasanton, Dublin and Livermore areas of the East Bay in California

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