Record High Multi-Family Construction Set To Wreak Havoc On Apartment Rents

Tyler Durden's picture

Softening apartment rents, particularly in the massively over-priced, millennial safe-spaces of New York City and San Francisco, have been a frequent topic of conversation for us over the past several are just a couple of recent examples:

Now, a new report from Goldman's Credit Strategy Team, led by Marty Young, helps to highlight some of the key data points that suggest that sinking rent will likely not be just an ephemeral problem.

To start, an just like almost any bubble, sinking rents are the symptom of a massive, multi-year supply bubble in multi-family housing units sparked by, among other things, cheap borrowing costs for commercial builders.  Per the chart below, multi-family units under construction is now at record highs and have eclipsed the previous bubble peak by nearly 40%.



Rents have already started to rollover but we suspect the correction has only just begun.



And while much of the rent compression has come in high-cost and commodity-exposed regions...

  • Rent growth appears particularly challenged in then highest cost areas. San Francisco, CA, San Mateo, CA and New York, NY counties have seen negative rent growth over the past year, while more moderately priced counties have tended to have stronger rent growth.
  • Regions exposed to commodity sector pressures –n including oil and coal – are also seeing weaker rent growth. Apartment rents in the Houston, TX MSA fell over the past year, while rents in Dallas, TX grew.

...per the chart below, dozens of low-cost markets are also starting to experience substantial rent declines.



Of course, despite all the warning signs for multi-family projects, not to mention the recent slew of retail bankruptcies which are about to flood the market with vacant commercial real estate, investors just can't seem to get enough CMBX to satisfy their demand for 'juicy' 450 bps spreads.


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junction's picture

When the real estate bubble pops, it will be a thermobaric explosion.

wee-weed up's picture

The rent is too damn high!

SmokeyBlonde's picture

MOAB: Mother Of All Bubbles

29.5 hours's picture

<<Wreak Havoc On Apartment Rents>>

Just not seeing this type of building activity on the Florida gulf coast. Seeing lots of refurbishings for re-sale; lots of McMansions going up.

imapopulistnow's picture

Yet if you believe the data, population growth on the west coast is soaring.

Observant's picture

Yep. That is one of the taboo, unspoken reasons so many in the Establishment want unlimited wetback immigration. They need more bodies to buy cars, homes, and furniture.

silverer's picture

But a lot of them are getting "relocated" to their original source.

milking institute's picture

Yeah,at least the Donald is holding true to ONE of his promises,for now......

Houses Depreciate's picture

Yet population growth is at record lows and falling.

CJgipper's picture

Look at Nashville.  Thousands of units coming online this year.

milking institute's picture

It's everywhere here in so cal,from high rises to 500 unit stucco boxes as far as the eye can see. it's like we where in some economic boom or some shit. Message to the builders: WE ARE NOT!   Restaurants are closing and tumble weeds are blowing around the malls,the car salesman just offered me a weekend with his wife if i would just buy one of those 947 Dodge Asspire he's got sitting on the lot,seriously! i said: got any pictures?....

Dorado's picture

Yep, just came back from a scouting trip to greater Tampa Bay area.  Rents aren't much lower than what we have in the greater New Haven area of Connecticut believe it or not.  I was surprised.  Hopefully we get this washout.  The crazy high home costs these days are primarily a function of the rental prices.  The argument for home prices is as a function of how much they could rent for PLUS Section 8 soaking up the majority of lower rent dwellings.


Praying for the correction so I can get a decent place to live without paying insane prices.  Feels like 2006 all over again.

Consuelo's picture



Until pink-slip Friday's become the norm here in the realm of FANG, it ain't real.

ToSoft4Truth's picture

Even Detroit is getting a lot of new apartment and condo construction built along with the downtown stadiums. 


Everyone seems to be overlooking the fact that 500,000 people in Detroit can't read or write. 

CJgipper's picture

That's what I keep asking - where are the jobs that support these types of rents and prices?

milking institute's picture

Rent your digs,rent (lease) your wheels and OWN the "Precious". what do you mean you just bought that condo AND that Tesla and you don't own ONE OZ? you,my brother are "fucked" as we say in the business....

Sonny Brakes's picture

Just wait until all of those unsold vehicles get marketed as mobile homes.

HRH Feant's picture
HRH Feant (not verified) Sonny Brakes Apr 14, 2017 4:13 PM

I have noticed new commercials for preowned vehicle dealers.

I also watched this video about a woman that lives in a 10-year old car on an income of $800 a month.

silverer's picture

"Wreak Havoc" means the rents won't be too damned high. The only way that hurts the landlord is if the mortgage isn't covered enough. Since the '70's, you can forget about positive cash flow on real estate. Too many doctors were willing to overpay for property and take the loss, then apply it to their regular income. Also, the government removed the ability to use accelerated depreciation on things like a boiler or other major improvements. The government is always the error in the equation, keeping balance out and uncertainty in.

barack_o_bumma's picture

Lower rent is only a bad thing for the investor and landlord but for the cash strapped consumer it's a good thing.

Gen. Ripper's picture

The rent's too damn high

Aubiekong's picture

Don't worry Syrian refugees with rents paid for by the tax payer will fill all the empty units and then some...

QQQBall's picture

Pretty interesting in Socal where MFD investment is active. Seeing East Coast and Midwest investors. You can get some building here, but ultimately it is supply constrained. I think you will get companies relocating out of Socal to other areas.  The days of aerospace and other industries (not businesses) is declining. It has taken longer than expected, but it should happen.


Drove cross-country a few months ago. Much of the country is NOT like Socal... looks like 2000 miles of bad road.

Houses Depreciate's picture

If it were "supply constrained", rental rates wouldn't be cratering as fast as they are.

TheSilentMajority's picture

Is there an existing significant over-supply of empty units for rent on the market?

If not, it will take a huge amount of new over-supply to significantly impact rents downward.

Houses Depreciate's picture

Rents are falling at a pretty good clip here in the Bay area.

blue51's picture

Section 8 , and a few  Million more refugees will take care of this .

Death By Cold Steel Report's picture

That's what they were counting on! They also outlawed single family home building! The problem with that is those that want one move away. Now they are being hit on both ends.

Don't worry after the war they will bring in the refugees. That's the excuse needed! Never forget that! Its a numbers game and last I checked there's a declining population.

Hubbs's picture

Anyone familiar with the Asheville,NC area? Have seen all these apartment complexes being built hand over fist. Meanwhile, the incentive for new renter referral jumped from $300 to $400 last month at one complex, as the same company is building a new complex in town.

Do these apartments at $1200 -1800 a month rent paid to the owner corporations, who then pay taxes on these properties, provide as much of a tax base had people been spending the money to build their own single family homes?


Do the zoning boards and local politicians ever take this into consideration as more newcomers flood into town, over crowding the schools and transportation? (I-40 and I-26)?

Silver Savior's picture

I think the gov should build row after row of Soviet Union style apartment buildings. And provide them free to the people. The ones who don't like them can continue to pay rent. Without the rent burden these people could prosper. It's the rent that cuts consumer spending down to nearly nothing. It's brutal. A crime. 

waspwench's picture

Here in Seattle they are building, if not row after row, then block after block.   There seems to be an endless supply of huge new apartment complexes.  

I backed off from purchasing BTL property a year or so ago because it was obvious that the small landlord with two, three, four properties was going to be frozen out.  I think this is planned.   Destroying the small landlord option removes yet one more way in which it used to be possible for working class people to get ahead AND they don't want independent people able to buy single family homes.   They want all of us in apartment blocks where we can be kept under observation and where we perpetually pay rent and never obtain the financial security of owning our own homes.

It's all part of the plan folks!   Private property will eventually be illegal.

RathdrumGal's picture

Yes, it is all part of Agenda 21.  This has been the explicit plan for decades, for anyone who has been paying attention.  It is also part of the anti-car, "walkable city" plan.  Remember when they redid the curbs on the residential streets in Shoreline to reduce the amount of on-street parking?  Remember when they reduced the southbound exits on I-5 to only one in Seattle (unless you were car pool) thereby creating massive traffic jams every evening on the south bound commute?  If you owned rural land, the wetlands legislation and western ground squirrel (AKA gopher) protection limited your land use, but you still had to pay 100% of taxes on the entire amount of land.

Face it, Seattle/Tacoma/Everett has been destroyed by liberal policies.  Our solution was to  sell out in 2013.  Leave Seattle, build a new sustainable life.  Idaho and Montana are calling.

Besides, Seattle is in the NK strike zone.  Could get messy.  Leave now.


RathdrumGal's picture

Tried that in the 1960s in places like Chicago.  They were dubbed "the projects".  Became unhabitable in 20 years and were torn down.

Silver Savior's picture

$300 a month is a fair rent. That's what it should be if people have to pay rent. That's ironically what I truly feel housing is worth.

Rikky's picture

And what does this actually mean?  Instead of paying $4k for a 1 bedroom apartment in NYC to rent you'll pay $3900.  Whoopdedoo.

Houses Depreciate's picture

But a decline from $4k to $3k is even better.....


Remember..... Nothing accelerates the economy and creates jobs like falling prices to dramatically lower and more affordable levels. Nothing.

Let it Go's picture

Society creates trouble by trying to deny that many people go through life making their own problems and allows the government to sidestep the issue by pawning the problem off on the private sector. An eviction on someone's record usually means they become ineligible for government housing programs. By making them "ineligible" for certain programs the government shrewdly and cleverly sidesteps having to deal with these people.

The brutal truth is that government housing cherry-picks the best of the low-income renters providing them with very low rents and nice apartments while dumping the rest on the private sector. This drives up rental prices on everyone else. More on this subject and other issues concerning housing in the article below.

yngso's picture

Interesting indeed! What happens to all the overpriced housing that most people can't afford now?

Ghost who Walks's picture

This is a very topical question  and has wider application than just to overpriced housing.

Let's call it re-purposing;

What happens to the empty Commercial properties?

What happens to the empty malls, factories and defense bases?

Who will maintain these empty buildings to preserve value?

I see urban explorer videos on YouTube of American teens walking through all these empty facilities and note the water damage and collapsed ceilings. Banks in central city areas are particularly interesting.

It is very clear that once no-one is working or living in a structure then regular maintenance seems to stop.