Market Monday: Multi Family Construction To Cool In 2018

Who: Bloomberg

What: U.S. multi-family construction set to slow in 2018.

When: November 20th, 2017

Why: Builders slowing pace after construction reached a 42 year high in 2017.

My Thoughts

This confirms my personal opinion on my local market here in Denver, CO.  My gut feeling is that the luxury multi-family segment in particular is becoming over built. There has been massive growth and many builders where rushing to catch up in order to cash in on the trend. The multi-family inventory that was being built was to match the young workforce attempting to attract high quality and high rent tenants.

My prediction is that many of the higher end multi-family units will end up dropping prices to get tenants in the door during 2018. More incentives will be offered by the new builds which will be great for renters. My long term call is also that millennials will end up being more like their parents then the media thinks and that home buying is just being delayed. Many renters will shift to home owners in the next decade which will put more pressure on the multi-family market. Growth has been fantastic in many major metropolitan cities in the multi-family market. However, I do not see wages keeping up with the rents being asked moving forward.

What Are Your Thoughts?
  1. What have you noticed in your local market?
  2. Do you rent or own?
  3. Do you think areas might be getting overbuilt which will lead to lower rents in the future?

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27 Comments on “Market Monday: Multi Family Construction To Cool In 2018”

  1. Oh Minneapolis is definitely becoming over-saturated in my opinion, yet the building continues. I suppose if the demand is there developers will keep on building. Will be interesting to see what impact an economic downturn (assuming we have one) has on the market.

  2. Wow, it seems like a theme everywhere! I’m in Vancouver, BC and there’s so much construction going on it’s crazy. I own (condo). The rent is increasing too, a 1 bedroom is now apparently around $2000 a month for rent.

    1. That is steep, not far off from the luxury apartment rents in the hip areas of Denver. Must feel nice to have the condo locked in.

  3. Here in Minny, the demand for single family home rentals within the city limits remains staggeringly high. I can charge a pretty heft rent if I wanted to. But I’m keeping it within reason. There’s a lot of condo-like development continuing, marketed to the millennial crowd. But if you want a dog and a yard and place to BBQ and chill with friends, you need to come to Cubert to rent one of his houses.

    1. Haha, that is awesome Cubert. How many houses do you have as rentals and when did you buy them? The homes with a yard go for a premium here in Colorado as well with many people wanting their dogs to have a place to roam.

      1. Four of em. Two bought in 2013, then one in 2015, and the latest in 2016. Most recent condo purchased this fall is the airbnb vacay rental in Mich. And yes – the condo builders can’t compete with the old school feel of a neighborhood, privacy and yard for the doggy dog.

  4. Interesting article. I’m a single family homeowner in the Chicago metro area. My wife and I bought a new house closer to work and moved this past year. It is a sellers market due to continually tight supply of single family homes. For the most part, price appreciation is moderate though. Location and quality still make a difference and people are not overpaying like in the mid 2000’s leading up to the housing bubble. Tom

    1. Good data point Tom. I would agree I do not feel the mania right now like it is 2007 leading up to some sort of crisis. My gut call is that we see some slower growth in the future. How long have you been in your current home?

  5. I enjoy listening to the Biggerpockets podcast as well as other real estate podcasts. Many have mentioned that they think that we’re at a peak. I don’t have a crystal ball so I try not to predict such things. I guess the luxury segment would be hit worse in a down turn. I’m from NYC and while there were some hiccups back during the crisis…if you bought in the right location and were able to weather the storm…you’re doing alright!

    1. Biggerpockets is fantastic for real estate information and they started in Denver! I think that buying multi family real estate could be a great way to build wealth, I just hope those that are doing it now are not rushing in and are making sure the numbers makes sense. Thanks for sharing.

  6. Interesting article. And agreed, a lot of construction continues to be occurring in various markets.

    On your questions:

    1. What have you noticed in your local market? Chicago is building a number of brand new rental buildings and fewer condo buildings. The Condos that are being built are very, very high-end and in fewer numbers. See #3 as well.

    2.Do you rent or own? We rent a 2/2 apartment in downtown Chicago for $2900 a month (still less vs. the 1/1’s in NYC we lived in for 8 years).

    3.Do you think areas might be getting overbuilt which will lead to lower rents in the future? Yes, it’s already occurring in our neighborhood 🙂 and one of the reasons why we’re quite content continuing the rent for the time being. 3 +400 unit buildings have gone up within a quarter mile (5 minute walk) of our building alone in the last year. Others are being built. Chicago’s South Loop and even the Loop itself has a flurry of MDU activity. Especially along the east bank of the southern branch of the Chicago river. Hell, the old post office building is opening as retail next year and eventually housing and other commercial space.

    Balanced Dividends recently posted:
    https://www.balanceddividends.com/balancing-account-types-to-balance-lifes-unknown-milestones/

    1. You and Tom are both dividend fans living in Chicago I think you need to meet for a coffee! Sounds like you will stand to benefit in your price point by being a renter. Do you negotiate your rate each time the lease contract comes up for renewal? Happy Thanksgiving.

      1. We always try and negotiate.

        Our lease recently came up for renewal in July. They offered us a 12 month extension and a 3% increase. We asked for a longer term and they offered us a 15 month extension. We then asked for a lower increase; they then offered a zero % increase. We took the 15 month extension with no increase 😁. We have been in the building for 2.5 years now (over 300 units).

        We’ve found the larger “luxury” buildings tend to be more flexible. Same with in NYC. No harm in just asking.

        Happy Thanksgiving as well.

  7. I’m from Toronto (in Canada) and we experienced a crazy up market during the past several years after 2009, but in 2015 to beginning of 2017, our gains were over 20% ish each year. Prices got so ridiculous to the point where you’d see like 20-50 offers leading to huge bidding wars. It was like a Black Friday line up sale every day for a house during that time haha. But all of that has cooled down a lot since April when they announced new government rules to control our market. Not sure where our market is heading, but I do know that our prices aren’t as crazy high as Vancouver (where GYM is from) lol.

    1. Do you think it is a good thing that the government stepped in? Was just in Vancouver earlier this year it is very beautiful I could tell there was a lot of money by all of the super cars rolling around downtown.

      1. I guess it’s still a bit too early to say. I mean, the prices in both our markets were growing at unsustainable rates — very very unrealistic! So many people became millionaires just by owning a few properties. And so many people followed afterwards by flipping for “quick money.” (I personally know some who were doing this). With that said, it seems like the gov’t really wanted to eliminate or discourage speculators from inflating our markets.

        On top of that, w/ prices at that level, average families who stretch their budgets would find themselves struggling especially when more rate hikes are anticipated. The mortgage payments on those higher priced homes are quite sensitive to even a small rise in interest rates, so I can’t imagine what their payments would be after a few hikes. I already know a few people who were already complaining after two hikes lol.

        So, I guess they stepped in for those of reasons. Whether it’s a good thing or not, Idk… I don’t want to jinx it haha. Overall, we’re just gonna have to sit back and watch what happens… *cross fingers*

        1. Rates moving up will have pressure on the market there is no doubt about it. Hopefully, wage growth will improve so everyone can afford higher payments in the future. Time will tell!

  8. The DC market seems to be staying strong even with some of the suburbs losing population due to the retirement of many in the federal government. I’ve read that nearly 1 out of 3 federal government employees are eligible to retire in the next five years. It will be interesting to see if they stick around with the high property taxes or flee with their pension to states like NC, that don’t tax federal pensions.

    1. That is very interesting MSM. I have never had a reason to learn more about federal pensions but that would make sense to flee to a state that gives you a better deal. How many states offer that benefit, thanks for the data point! Happy Thanksgiving!

  9. Lots of interesting things here. One thought I have is that this will end up pressuring older (non-lux) units. Thats not necessarily bad. There are many apartments that are barely habitable and need to be either scrapped or redone. Either way, landlords around here are starting to offer 1-2 months of free rent to get people into luxury places. If you think about the net effect, this means that the rent prices are falling.

    1. That is what we are experiencing here as well. I agree that it will put pressure on the non-lux units but I think many people are happy to pay a decent price for a run down place if it is in the right location.

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