02/23/2015 | by

Construction of new multifamily housing increased to a 381,000 unit seasonally adjusted annual rate in January, as robust demand for rental housing and record prices of apartment buildings provide strong incentives to build new supply (first chart). Multifamily housing starts are running nearly four times the average pace during 2009 and 2010, prompting some fears of overbuilding.

A peek a bit further back in time, however, casts the recent trends in a bit different perspective. Multifamily starts averaged 300,000 between 1995 and 2007 (second chart). Unlike the single-family housing market, there was little or no overbuilding in the apartment sector during this period. In fact, construction of 300,000 units per year is roughly what is needed to keep pace with the rental demand of a growing population.

During the Great Recession, however, multifamily starts plunged far below the pace consistent with population growth. By 2013, the cumulative shortfall in apartment construction relative to population trends exceeded 600,000. The recent surge in construction is only beginning to fill this backlog. While there may be some local markets that will need time to digest the new supply, on a national basis the market shows few signs of excess supply.

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