After six years of growth, the pace of apartment construction in the country has finally slowed, hinting at a looming correction in the market.
Nationwide, there are an estimated 283,000 units projected to enter the market in 2018, according to a new report from RENTCafe, an apartment search website. That’s 11 percent lower than last year’s peak, when nearly 318,000 units were delivered.
Doug Ressler, a senior analyst at Yardi Matrix, who compiles the data for the report, attributes the slowdown to larger macroeconomic forces that are tightening “deal flows.”
“Back in 2008, [banks] couldn’t give away money fast enough,” Ressler said. “But now, with a healthier economy, banks are stepping back and changing their structure in terms of what they’re going to loan money for.”
Rising interest rates, coupled with pricier material costs, have also contributed to the decrease, he added.
In Los Angeles, where supply is already extremely tight, the pace of apartment construction has dropped even more drastically. This year, approximately 11,400 units are expected to become available, reflecting a 23 percent decline from 2017 totals.
The City of L.A. accounts for more than a third of that, followed by Anaheim, Glendale and Long Beach.
New York led the nation, with 19,950 new units expected in 2018, according to the report. Dallas ranked second with 17,130 units, while Denver snagged third place with 15,190 units.
Rounding out the top five were L.A., and Chicago with 10,710 units. Miami ranked seventh in the nation with an expected 9,790 units.
Meanwhile, the national average rent has already risen 2.3 percent during the first six months of the year. At this time last year, the national average was up 2.9 percent. It’s unclear whether this year will top last year’s 3.5 percent increase, or the 4 percent posted in 2016.
The report comes just one day after another study, published by consultancy firm Rider Levett Bucknall, revealed rising construction costs across the nation. The cost of building in L.A. grew 5 percent in the past year, surpassing the national average and other cities like New York and Chicago. Some of those higher costs are attributable to a series of tariffs, enacted by President Trump, that have made key building supplies, such as lumber and steel, more expensive.