A modest decline in supply of multifamily real estate assets will further improve vacancies

Authored By
George Tsetsekos, PhD
Francis Professor of Finance
The supply of new construction has experienced moderate decline in the past 3 years as measured by the new construction permits . Favorable employment and wage trends will yield to improved vacancy rates.

Recent data reported by the US Census Bureau clearly show a decline in the number of permits for building new multifamily houses in the US. The decline has not been dramatic as it was observed in the single-family housing sector. It simply shows a slow in issuing permits, but the volume is at least 3 times larger compared to the all times low observed during the real estate crisis of 2008-09.

Chart showing number of multifamily building permits
US Census Bureau 2018

At Lexerd we believe that his is not a correction in the supply side of multifamily properties, but it reflects a normal adjustment in the market place as permits tend to involve complexities in the application process and require thoughtful economic considerations to allow for balancing of supply and demand for rentals.  In fact, as macro-economic trends point to prolong low unemployment rates, this level of permitting offers comfort in maintaining a healthy level of occupancy across the entire sector.  

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