Apartments are the Only Housing Sector That Is Not Oversupplied, Affirms Witten

By Keat Foong, Executive EditorWashington, D.C.—The apartment market remains healthy although rental demand is slowing, said Ron Witten, president of Witten Advisors LLC, speaking this week at the National Association of Home Builders’ (NAHB) Fall Construction Forecast Conference. Witten said that apartment occupancy level has decreased by only half a point in the past 12 months, and is now at 95 percent on a national basis. Rent growth continues, but it has declined from 4 to 5 percent at its peak in 2006-07 to 2.3 percent in the second quarter this year.  “Fundamentals are still quite good in the multifamily rental sector,” said Witten.However, he said that rental demand is “definitely” declining. Witten said the “real threat” to apartments comes from the single-family “shadow” rental market. However, he added that in early-2008 there was a significant trailing off in rental singlefamily move-ins due to renters’ avoidance of living in remote locations because of high gas prices. Witten forecasts that job losses will continue through 2009 before modestly recovering in 2010, and he said there will be a “strong” 2011. Witten said there are about 100,000 units of empty apartments, which is not a big overhang given the base of about 20 million-plus apartment properties. He said no significant progress will be made in reducing the inventory as long as there are job losses through the end of 2009. “This is the only housing sector that is not oversupplied,” he said. 2009 he said will see the end of job losses, and by the end of 2010, any excess inventory will be “behind us.”  David Seiders, chief economist of NAHB, said at the forecast that there has been a strong increase in multifamily rental production in the past year. However, he said the NAHB forecasts this increase was “overdone” and expects a decline in apartment starts, which will continue for about a year before stabilizing.