Despite many reports of residents leaving downtown areas throughout much of the COVID-19 pandemic, metropolitan areas across the nation are continuing to see increased construction of apartment units. According to a 2021 construction survey from RentCafe, more than 330,000 new rental units are expected to be delivered nationwide this year, with eight markets, including two in the Bay Area, expected to hit five-year highs of new apartment construction.
“The pandemic shifts and resurgence of the residential rental market bring new residential supply into focus,” said Doug Ressler, manager of business intelligence at Yardi Matrix, a sister site of RentCafe. “Lack of entry-level housing supply and rising home prices will show the multifamily rental market demand increasing as new renters enter the market and millennials extend their rental commitments.”
According to the report, construction has maintained at a steady pace despite high costs of lumber, struggles to find workers and supply chain issues caused by the COVID-19 pandemic. Regardless, RentCafe reported just a 2.5 percent decrease in new units from 2020. Comparatively, however, 2021 saw nearly three times the amount of under construction apartments nationwide than what was reported in 2011 following the housing crisis of 2008.
“A dramatic increase in lumber prices earlier this year created a challenging environment for builders, but the industry appears to have stabilized and is recovering,” Ressler said. “Look for builders to further reduce price with longer term contracts and enhanced supply chain methods and building component alternatives.”
Despite these concerns, several markets continued to report large increases in apartment construction. In the Bay Area, 13,000 new units are expected to be delivered to San Francisco and San Jose this year. According to the report, San Jose alone is set to increase its number of apartments by 79 percent compared to the same time in 2020. This is the second highest jump in the nation after Charlotte, which reported a 100 percent increase. San Francisco trailed slightly behind with a 36 percent annual increase in apartment construction. Though neither were ranked top in the nation, both markets reported a five-year high in projected deliveries, with San Francisco expecting 7,872 units this year and San Jose expecting 5,625 units.
In Southern California, however, Los Angeles was ranked one of the top markets in the nation for expected apartment deliveries. While only reporting a nine percent increase from the year prior, 13,682 units are expected to be delivered in Los Angeles by the end of 2021. According to RentCafe, the market placed fifth in the nation, just behind Houston, which is expecting 15,760 units by the end of 2021.
In contrast, six of the surveyed markets reported decreases in the number of expected apartment unit deliveries. Of these, Seattle reported the second highest decrease, with 7,574 units anticipated to be delivered this year. According to RentCafe, the market reported a 19 percent decrease in anticipated apartment construction, following just behind Denver, which reported a negative 46 percent change in expected units. Previously, the two markets were ranked among the top in the nation for apartment deliveries throughout the 2010s, according to the report.
“In the near-term, demand for affordable housing is rising exponentially and supply is unable to keep pace. In general, class A/B+ buildings took the biggest hit in rents during the pandemic when many of their occupants who had the ability to leave left for housing that better fit their immediate needs – whether that was more space, less interaction with neighbors, or further distance from an office they no longer had to frequent,” Ressler said. “Now that the demand is returning for those units, it will take time to reach an equilibrium as building operators aggressively align with the renewed demand.”
Looking ahead, however, Ressler said markets in the Western and Southern portions of the U.S. will continue to see more development in the years to come as population growth heightens demand.
“To assess long term market fundamentals, we evaluate the demographic data which analyzes demand for migration patterns, employment, and wage growth to name a few. Certainly, the west and southeast markets will see increased demand and development growth,” Ressler said. “Markets under stress are in the Northeast and areas of out-bound migration.”