Is The US Experiencing A Glut of Apartments?

The Real Estate Espresso Podcast

Is The US Experiencing A Glut of Apartments?

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Is The US Experiencing A Glut of Apartments?

Today, our topic addresses a challenging issue facing the multi-family apartment market across the United States. The year 2023 was a landmark year for new apartment completions, with approximately 440,000-510,000 units finished. This unprecedented surge in building resulted in what appears to be an oversupply in certain markets, triggered by a drop in demand after the pandemic. What lies ahead for the market? Let’s explore.

A Look at the Hot Markets

Several markets across the US are currently oversupplied with apartments. One such location is Austin, Texas—an area that has experienced a high-tech boom and consequent population growth. Despite this, there is a surplus of about 1,100 units, with an additional 43,000 under construction. This overabundance of units could potentially affect the local rental market for several years.

Understanding the Housing Demand Equation

To comprehend the oversupply issue, one must consider factors such as a city’s growth rate, homeownership rate and the anticipated demand for apartments. Austin, for instance, adds approximately 46,000 people annually to its population of 2.27 million. However, its demand for apartments is subpar to the supply, with an oversupply of about 8,000 units and an additional 46,000 units in the works.

Housing Situation in Other US Cities

Other US cities, like Houston, Texas and Phoenix, Arizona, also suffer from oversupply of apartments. To illustrate, as of 2023, Houston’s downtown area had a vacancy rate of 20.7% even after 20,000 apartment completions the year before. Similar is the case in Phoenix, with a near 10% vacancy rate and an additional 51,000 units under construction. The Dallas-Fort Worth metro area is the second-leading market in new construction with 70,000 units under construction, despite a 10.6% vacancy rate. Hence, it is important to emphasize that this issue is not isolated but occurs in multiple markets across the US.

Are We Experiencing a Housing Shortage or Glut?

The National Association of Realtors has previously stated that there is a housing shortage of around six to seven million homes in the US. However, given this market analysis, there appears to be an oversupply, particularly of rental housing in the fastest growing cities. This contradiction brings to view the complexity of the real estate market and the importance of a thorough understanding of its dynamics when making investment decisions.

Checklist for Assessing Market Oversupply:
Understand the demographic factors driving demand
Analyze local homeownership rates
Calculate anticipated demand for apartments
Evaluate new constructions and completions
Consider the effects of economic and cultural shifts

As an investor or homeowner, it is crucial to keep abreast of these market changes and comprehend the intricate interplay of supply and demand. As you ponder over these numbers, I wish you an insightful and productive day. Let’s continue the conversation tomorrow.

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