Apartment Construction Delays Persist

Construction delays continue to be a problem for apartment developers. 

More than half (57%) of developer respondents reported construction delays in the jurisdictions where they operate, according to the fifth edition of the National Multifamily Housing Council (NMHC) Construction Survey.

Ninety percent of respondents said delays in permitting were due to COVID-19. That was the largest share to indicate delays since the inception of the survey in late March. In the first edition of the survey, 76% of respondents reported delays related to COVID.

More than three-quarters of respondents (77%) said delays indicated a significant pause in starts. In the first edition of the survey, 59% reported they were experiencing delays in starts. Since then, 70% or more of respondents indicated a significant pause in starts.

Respondents said that permitting, entitlement and professional services (67%); economic uncertainty (58%); and availability of construction financing (46%) were the main drivers of delays in starts. More than one-third of respondents (38%) said their delay was due to their project not being economically feasible at the time. In the fifth edition of the survey, only 16% reported that delays were due to projects no longer being feasible. 

There is some good news. Sixty-three percent of respondents said that the estimated duration of the delays were less than sixth months. A smaller percentage, 21%, said the period of delay was only six to 12 months. Only 4% estimated that their delay would be 13 to 18 months.

As construction delays linger, they can be impactful for investors. 

“With construction delays, the yield to investors goes down because you’re not delivering benefits,” David Leopold, senior vice president and head of Affordable Housing at Berkadia, told GlobeSt.com. “In a conventional property, you’re not delivering cash flow as you had forecast and in a tax credit property, you’re not delivering tax benefits as early as you had forecast.” 

Lack of materials was also a significant problem. More than half, 58% of respondents reported being impacted by a lack of materials, which was an increase of 44 percentage points since the last round and by far the highest share recorded since the survey began. The fifth survey also saw the highest share of respondents, 82%, who reported price increases in materials. In the last round of the survey, only 18% of respondents reported price increases. 

One material that has risen dramatically since late summer is softwood lumber. In September, softwood lumber prices rose 28.6% (seasonally adjusted), according to the Bureau of Labor Statistics’ Producer Price Index.

Marcus & Millichap says the surge in lumber demand canceled and delayed some projects. However, apartment developers say deals are still getting done. “It hasn’t killed any of our deals,” says Ken Valach, CEO of Trammell Crow Residential, told GlobeSt.com in an earlier interview. “I think we all are working through it.”