Survey Says Multifamily Is Not Overreaching With Supply

NEW YORK CITY—There are many schools of thought about the multifamily asset class and whether developers, lured by the seemingly never-ending demand for the product, are overbuilding.

One is that demand is, in fact, never-ending or at least not nearly close to saturation. Industry observers will point to shadow demand for apartment living, such as the young adults that are starting to find jobs and move out of their parents' basements. NAREIT, for example, is an advocate of this view and has done serious research establishing that demand will trump supply for multifamily for years to come.

Another school of thought is the pessimistic view that so much supply is entering the pipeline that, while it may not house every last millennial who is looking for his or her own roof, it will start to have a significant impact on pricing—both in rental flows and in investment sales.

GlobeSt.com readers fall somewhere of the middle of these two ends of the argument, presenting an interesting and very nuanced view of the current state of multifamily.

In our poll, we asked readers: "With all the new multifamily available or underway, are we being overbuilt."

The majority of respondents, or 38%, said no not yet – but that the supply growth will be telling in the most active markets.

Another 24% also answered no – but did believe that the influx will impact pricing power or at least that this influx will bear watching.

In essence 62% believe the supply-demand equilibrium still favored the developer, but trends definitely bear close watching either in a particular market or for pricing trends overall.

Another 17% flat out said the market is operating as markets are supposed to – that is responding to demand. Their belief is that the new units coming online now are still being absorbed relatively quickly.

Twenty-one percent, however, voiced the opinion that the amount of supply in the market is already reaching its top limit.

Interestingly, though, as GlobeSt.com tabulated the responses Fannie Mae released its July 2014 National Housing Survey with data that give both the bears and the bulls some ammunition for their position.

Americans' attitudes toward the housing market remain mixed, but they are steadily feeling more confident in their personal financial outlook and that may bode well for housing in the coming months.

"The continued cautious sentiment expressed across the range of consumer indicators this month gives weight to our view that the first phase of the housing recovery is decelerating, and 2014 will be a year of mixed housing outcomes with home prices rising more slowly and home sales falling slightly," said Doug Duncan, senior vice president and chief economist at Fannie Mae, in a prepared statement.