Some Overestimating Apartment Completion Numbers for 2023

One executive panelist pretty much nailed it (pardon the pun) about the apartment development “oversupply” on the way for 2023 when speaking at this month’s National Multifamily Housing Council’s Apartment Strategies Conference.

“Unless there’s an outside force to stop us, we’re going to keep on building,” Cortland CEO Steven DeFrancis said.

“There’s no one in this conference today that if they were able to get the financing they need to develop, wouldn’t be ready to run home and start it.”

The industry lately has pointed to a lack of housing in nearly all forms.

DeFrancis said that in whatever economic environment 2023 turns out to be (a soft landing, a recession) “there’s definitely going to be some pain because we have a lot of product coming and not a lot of people to put in there.”

Greg Willett, First Vice President, National Director of Research, Institutional Property Advisors (IPA) Division of Marcus & Millichap, has taken in the many forecasts for new apartment development for this year and offers his realistic calculation of 2023’s likely rental apartment completions.

“Given the run-up in the total volume underway and the pattern of building delays seen in recent years, the number is perhaps harder to determine than you might expect,” Willett said, in a post on LinkedIn.

“Looking at info from various sources, there’s basic agreement on how much product is physically under construction right now: It’s between 900,000 and a million units, up by more than a third from the pre-pandemic building pace seen in late 2019 to early 2020.”

It’s More Like 400,000

Some apartment industry data providers have 2023’s scheduled deliveries coming in at well more than 500,000 units, Willett said, with that volume based on the timelines provided by developers of individual properties.

“But that’s probably more product than can actually make it across the finish line this year,” Willett said, based on IPA analysis. “We think the actual new supply figure will come in closer to 400,000 units.

“Influencing that expected completion volume, developers already have been using available resources to build as fast as possible, and 2020-2022 annual deliveries held steady right around the 350,000-unit mark. Completing another 150,000 to 200,000 units on an annual basis without a sizable expansion of the labor pool seems like it simply can’t happen.”

Digging deeper, Willett said the comparison of actual completions to scheduled completions in recent years shows that it’s become routine for at least 15 percent of the targeted new supply to get pushed into the next year’s delivery tally.

“Holding 2023’s completion total below the scheduled volume will yield slightly better results for vacancy stats as well as pricing power,” he said. “Still, in many instances, it’s going to be tough to get the new projects through the initial lease-up process.