The National Association of Home Builders is projecting a 16% increase in multifamily housing starts this year. But the 133,000 units that apartment developers are expected to produce will not be nearly enough to meet demand.
Between 250,000 and 300,000 units are needed to keep supply and demand in check, the trade group's chief economist, David Crowe, said at the group's annual convention in Orlando, Fla., this week. But the capital required to build them is just not there.
"We've got to get back on track," Crowe said during a press briefing. "We still have hopes of answering the demand because we're way behind on household formations. We're 1 to 2 million households under where we should be. But when they start bursting forward, we're going to need apartments, because that's where they typically move."
Developers like AvalonBay Communities Inc. "would love to build more," said William McLaughlin, an executive vice president with the Washington-based real estate investment trust.
"We see a number of years ahead of us in which there will be a real disconnect between supply and demand."
Avalon, which is a publicly traded, has little trouble obtaining capital. But that's not necessarily the case for private development firms like Wood Partners of Boca Raton, Fla., or companies such as Michaels Development of Marlton, N.J., which develops affordable rentals.
Even though Woods is 51% institutionally owned, it still operates like an old-school builder that looks to traditional sources of capital. And according to Jay Jacobson, the company's national partner for acquisition and development, national money-center banks have yet to return to the market. Consequently, Woods is using smaller regional and local banks.
