Drop in apartment construction may lead to shortages, big rent increases

Apartment rents have been falling. Vacancy rates are high. But how long will that last?  Steve Brown of the Dallas Morning News reports that we may soon be facing a shortage of apartments:

A dramatic decline in U.S. apartment construction could lead to a shortage of rental housing in the years ahead.

This year, developers are expected to start about 87,000 units – less than a third of what they build on average each year. And the outlook for 2011 isn’t much better.

“We will be facing a severe shortage of apartments in the next few years, which will increase the cost of housing for consumers,” Sharon Dworkin Bell, senior staff vice president of the National Association of Home Builders, said at this week’s convention in Las Vegas. “We believe we should have 300,000 starts every year to have a stable market.”

That’s not likely in the foreseeable future.

“We have a combination of limited supply coming on and increased demand when the economy recovers,” Bell said.

Michael Costa, a partner in McFarlane Costa Housing Partners of California, said, “We know that the demand for housing – especially rental housing – is going to be there. Each month we are not able to get our starts going, we fall further and further behind.”

At some point, a lack of rental units will take a bite out of consumers’ pocketbooks. “We are predicting now we may see upwards of double-digit rent increases,” Costa said.

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