Oversupply Is The Big Fear
A report from the Real Deal. “Banks are shying away from financing new apartment projects as supply starts to outpace demand. This year more than 378,000 new apartments are expected to be completed nationwide, according to real estate researcher Axiometrics Inc. But only 50,000 of the 88,000 apartments completed in the fourth quarter of last year were rented out, the Wall Street Journal reported. ‘Our business has radically changed,’ Toby Bozzuto, chief executive of the Bozzuto Group, which has about eight buildings in New York City, told the newspaper. ‘I haven’t seen anything this seismically different since 2008, when credit dried up.’”
The Chicago Tribune in Illinois. “Magellan Development Corp. is planning to fill a fairly unorthodox position at its newly opened 36-story River North building: live-in musician. The new position is the latest salvo to be fired in the battle for renters in downtown Chicago, where a boom in a luxury residential construction has caused a rental housing glut, and where experts say landlords may soon have to lower monthly rates in order to fill their units.”
“‘With so much new construction everyone is looking for an edge or special identity,’ said Gail Lissner, vice president of Appraisal Research Counselors. Featuring a resident musician can do that without incurring any construction costs or making a commitment that can’t be easily changed, she said.”
The Boston Globe in Massachusetts. “Condo prices in Boston hit fresh highs last year, thanks to sales at several new high-end buildings and the continuing demand for living in the core of the city. But a wave of new units could test the strength of the city’s condo market in the next few years. To date, much of the housing built in the city during the current boom has been apartments, enough to cause rents at the high end of the market to plateau.”
“Data released in early January showed that apartment rental prices fell slightly at the end of 2016 — the first drop since 2010 — amid a surge of new buildings that have opened in Boston and neighboring cities such as Cambridge, Chelsea, and Somerville. Thousands of new condominium units are set to open this year and next, from stand-out towers such as One Dalton in the Back Bay and the Pierce in the Fenway, to more modest buildings in South Boston and the South End. Thousands more are planned or already being built.”
“LINK’s president, Debra Taylor Blair, has heard some fears that there could soon be a glut. But, she said, the steady price growth, along with a historically fast pace of sales, suggest a lot of customers are still looking to buy. ‘Oversupply is the big fear,’ she said. ‘But what these numbers say to us is that there’s a lot of pent-up demand out there to live in Boston.’”
“And Boston’s residential real estate market is often seen as one with little downside risk. Standard & Poors, for example, recently estimated that if another recession hits — even one of the magnitude of the economic downturn that began in 2007 — Boston-area home prices would dip less than 2 percent. Even under the worst-case scenario envisioned by S&P, values in Greater Boston would slip 6 percent, compared to a 27 percent plunge nationally.”
From Houston Public Media in Texas. “You may have heard of the ‘apartment glut’ that’s plagued Houston. In the past three years, developers built around 60,000 – mostly higher-end – apartment units, but because of the slow job growth after the price of oil tanked in 2014, there’s not enough demand to fill many of them. Bruce McClenny, president of Apartment Data Services, said the glut is mostly concentrated on west Houston, where a lot of the upstream oil industry is based.”
“‘And that’s the part of the industry that’s hurting the most right now, so there’s been a lot of job losses,’ he said. ‘And at the same time there’s been a lot of new apartments coming on at the same time. Those two aspects don’t fit well together.’”
“So what will 2017 be like for the apartment market? Probably not much better, McClenny said. ‘There’s another 15,000 (apartments) under construction, (of) that 12,000 will be delivered this year,’ he said. ‘We’re still draining out the supply pipeline.’”
