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New Apartment Supply: Too Concentrated or Just Right?

48% of new properties located in 15 metros

By Carl Whitaker | Wednesday, May 3, 2017

 

Anecdotal claims from apartment industry professionals have stated that about 50% of new apartment supply delivered to market in recent years has been in a handful of metros.

At a surface level, it is not surprising that a large portion of new supply has been delivered in the nation’s largest metros. People will always need shelter, and developers recognize the need to deliver housing units (i.e. apartments) in heavily populated areas.

What may be surprising to some, however, is that the overall share of new supply to the top five construction markets is actually much lower than 50%, though the share in the top 15 markets is closer to that mark, according to Axiometrics apartment market data.

From 2014-2016 – a period in which the largest amount of new supply has been delivered to many markets since pre-recession years – an estimated total of 959,500 units were delivered in the 500-plus Axiometrics-tracked metros.



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An estimated 234,500 units (or roughly one-quarter of national supply) have been delivered in five markets alone. Of these five, two of the markets (New York and Houston) have had more than 60,000 units delivered during the three-year time frame. Dallas’s 47,000-plus units ranks third nationally. Los Angeles and Austin round out the top five.

The nation’s top 10 markets have received more than 38% of all new supply. Extending that list to the nation’s top 15 markets, we begin to see some truth in the claim that 50% of new supply has been in a few select metros. The nation’s top 15 markets have received more than 462,000 new units between 2014-2016, more than 48% of the nation’s new supply, the Axiometrics apartment data shows.



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Perhaps the most unexpected inclusion on the top 15 list is San Antonio. However, San Antonio is the nation’s 24th largest metro based on 2016 population estimates, with more than 2.4 million residents, making it a more understandable addition to the list. Austin is ranked only 31st in population, but this metro is dominated by the University of Texas and has a strong rental population.

Texas features four of the nation’s top 15 new supply markets in the apartment industry. Amazingly, these four metros alone account for over 16% of the nation’s new supply during the three-year period, which highlights the state’s sustained construction boom.

What has been driving development in these top metros?

Population growth and job growth (two closely linked variables) may not explain all the development in these metros, but they certainly explain a significant portion of it.

Job growth and apartment market performance go hand in hand, and when jobs are continually being added to an area, new supply often follows closely behind. Theoretically then, the top job-growth markets (in terms of their total job gain from 2014-2016) should also have, in general, the most apartment construction.



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A quick glance at the top 15 job gain markets reveals there is overlap between the top job gain metros and the top new supply metros. New York, Dallas and Los Angeles are once again three of our top five markets, meaning these markets are adding more jobs and more new supply than almost anywhere else in the nation.

More than 2.84 million jobs have been added in the top 15 job-gain markets in the past three years, almost 57% of the roughly 5 million added nationally.


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Only Austin and Charlotte made the top 15 new apartment construction markets and not the top 15 job gain markets. (These markets are, however, in the top 15 markets in terms of percentage job gain).

One notable job-gain market with relatively little new supply is Riverside. Riverside has been one of the nation’s strongest performing markets in terms of rent growth in recent years though, which easily points back to the market adding lots of jobs but not much new supply.

Population growth is theoretically another factor that should correspond with new supply.

The nation’s top 15 population-growth metros have added a total of almost 2.18 million people from 2014 to 2016, almost 48% of the national total of more than 4.56 million.


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While it should be noted that the top 15 population growth metros are not a one-for-one match when it comes to new supply metros (see above table), the similarity between 48.2% of new supply and 47.7% of population growth is staggeringly similar.

Orlando and Tampa both exhibit solid population growth, but relatively low new supply totals by comparison. This may reflect strengthening single-family markets in these two metros, which also attract a large number of retirees.

So, the question posed in the title is no, it does not appear that apartment construction is overly concentrated in only a few markets – at least disproportionally to their job and population gains. Typically, the metro areas attracting new residents and more jobs are where apartment developers are concentrating new construction.

 

 

 

Carl Whitaker

Carl Whitaker

Real Estate Analyst

Carl Whitaker is a Real Estate Analyst for Axiometrics.

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