Apartment Construction in 2018 Expected to Decline 11% After Strong 6-Year Run


The Yardi Matrix/Rent Cafe expects apartment construction to decline in 2018 for the first time since 2011.

The Rent Cafe reports Apartment Construction Is Expected to Slow Down in 2018 After a 6-Year Upward Streak

Following an almost decade-long period of vigorous expansion, the growth of the U.S. renter population has reached a plateau in 2016. Construction had continued to break records – until this year, when Yardi Matrix market data suggests that the total number of new completions is going to remain far below the 300K mark.

Compared to 2017 when the number of new deliveries reached an all-time high mark in the last 20 years, 2018 will see about 34,900 less deliveries ready to hit the market. The amount of new construction has followed a fast-ascending trend in the past 6 years, but the trend is estimated to change course this year. 2017 deliveries represented a new post-recession high, although actual apartment deliveries last year came short of initial estimates in many metros, due to increased construction costs and qualified labor shortage. As the market is approaching a saturation point, 2018 may mark the start of a construction cooldown for the next few years.

Three-Year Totals

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Apartment construction has last peaked at 933K deliveries between 1983-1985 and is forecasted to reach an astonishing number of 910K deliveries by the end of 2018, the closest it’s come to that record-breaking performance ever since.

Rents Still Increasing

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The national average rent has already seen a 2.3% increase during the first six months of this year, and whether or not it will outpace 2017’s 3.5% uptick by the end of the year is up to the market’s reaction time, as the slightly narrower pipeline has the potential to blow even that little wind out of the sails of renters. One thing’s for certain: the number of renters has been on the increase in the past years, and it’s unlikely to start decreasing as long as home prices are shooting up faster than rents.

Top Metro Areas

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Expensive markets such as San Francisco, Boston, and San Jose metro are adding a low supply of new apartments to their inventories. San Francisco is adding less than 7,000 new apartments while Boston is counting on about 5,000 new apartments to be built. Moreover, San Jose is planning on adding about 4,500 new units. Seeing these numbers, there’s not much hope that rent prices might drop any time soon.

Renters Become Recent Majority Population in 22 Major Cities

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The preceding two charts from Renters Became the Majority Population in 22 Big US Cities.

Trend Towards Renting

It's easy to understand the trend increase in renters. Millennials entering the workforce cannot afford homes.

Yet, saving up for a home is next to impossible for all but a small percentage of highly-paid workers.

Pent-Up Demand

Every month, Lawrence Yun, NAR spokesman complains about lack of supply and pent-up demand. This month Yun complained "The root cause [of slow sales] is without a doubt the severe housing shortage that is not releasing its grip on the nation's housing market.

In reality, there is no housing shortage. Rather, there is a shortage of houses that people can afford. Builders don't build more houses because people cannot afford them.

Yun misses the mark by a mile on the root cause of his alleged crisis. The root cause of this mess is Fed policy.

The Fed's expansionary policies bailed out the banks and created numerous asset bubbles. The economists do not properly factor rising asset prices, especially housing into there consumer price inflation (CPI) models.

Related Articles

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  2. Real Hourly Earnings Decline YoY for Production Workers, Flat for All Employees
  3. Housing Starts Unexpectedly Plunge 12.3% in June, Permits Down 2.2%

In point number one above I commented "It's looking increasingly likely that housing has peaked this cycle."

Research from the Rent Cafe adds another angle on my statement.

Mike "Mish" Shedlock

Comments (6)
No. 1-6

This is an interesting article, surprised nobody commented. One thing that jumped out at me in the "renter majority" city charts is that many of those locations are "cheap" markets. Even still, people are renting in droves. I've seen tons of apartments go up in the last few years and even though the rent increases appear to be slowing, the trajectory was meteoric for a while.

Yun will never admit that a lot of demand for housing in recent years has been investors looking to park money in a hard asset. People don't necessarily live in homes they buy, particularly with foreign money. I read once about the rise of investors purchasing properties sight-unseen, which seems fantastic. These are hallmarks of a huge bubble.


The reason they don't build apartments with affordable rents or affordable entry level homes is that they do not "pencil" for builders. The demand for reasonably priced homes and apartments is huge. But builders cannot build them profitably. The cost of land, permitting, labor, materials, etc... is too high to build middle class houses or apartments. They can only build "class A" high end apartments.

There may be a glut of "class A" apartments at one day. But the demand for class B and C is voracious and probably will not go away too much.

Apartments, especially class B, have been a amazing investment the last 8-9 years.


And I agree with you about the Fed and bailouts Mish. They should have just let the foreclosures rip back in 2009 and just let the housing market flush itself out and naturally correct. That plus price discovery being allowed with rates would have allowed housing to reach more of a natural balance. And not be artifically inflated by low rates. But I do think apartments were undersupplied in 2010. They did not build a lot of apartments for 20+ yrs in the 90’s and ‘00’s.


"In reality, there is no housing shortage. Rather, there is a shortage of houses that people can afford. Builders don't build more houses because people cannot afford them."

If the price of a widget is too high, it's because the supply is too low. The reason houses aren't affordable, is that there isn't enough of them. Add a billion high quality units on Manhattan, and they'll be reasonably affordable. And, conversely, ban anyone but Donald Trump and about a 100 other New Yorkers from owning a cell phone, and those will be very expensive....

The reason builders don't build more, despite prices waaaay higher than their cost of building, is that they aren't allowed to. Because, just like with the above New York cell phone scenario, the 100 who happen to own the only ones allowed, benefit from banning anyone else from owning one. So they can rent theirs out for $1000/minute to desperate would-be callers. And those 100, are the ones that own our current, entirely unrestricted government. And are hence in a position to use that government as a tool to rob others on their behalf.

Was I allowed to, I would, immediately, set about alleviating the San Francisco housing shortage by replacing my mold infested shack with several tens of high quality units. And, undoubtedly and in some cases confirmed, upon seeing my newly erected monument to the solution of San Francisco's housing cost problem, so would my neighbors. No differently than how cell phone makers solved the problem of too few cell phones in New York leading to too high of a cost, and hence shortages.

It's not on account of "building costs," even fortunate San Franciscans are overpaying for shitty houses. While their less fortunate peers either live on the streets, or waste their lives away commuting from what may as well be camps in Siberia. But rather, on account of the same pathology that underlies all the major problems of the post-Bretton-Woods West: Governments and Central Banks doing their darndest to rob as many productive people as possible, on behalf of a cadre of unproductive, incompetent, useless and utterly expendable rent seekers.


In the past, when housing prices went up, builders would build in outlier areas. People would have longer commutes, but at least they had a home. Now those outlier communities are too far to commute from for many. I work in what used to be an outer suburb in the 1980's. Half the employees here live farther out in the same direction from the city center. They're basically restricted to work in a suburban area that's the closest to where they live.

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