An estimated 453,000 apartment units are expected to be delivered in 2019, a hefty 19% increase from last year.

“It appears that this is the year we’re going to have peak deliveries of multifamily apartments,” says Kim Betancourt, director of economics and multifamily research at Fannie Mae.

Kim Betancourt
Kim Betancourt

However, most of those units are going to be Class A market-rate units, which fails to address the affordable housing shortage.

The high number of units expected to be built this year will be the most in about a decade, according to Betancourt. Even if the number of deliveries falls short by 25,000 units, there’ll still be 428,000 new apartments added to the stock.

The large number of new multifamily units being added to the existing stock is expected to peak just as job growth is expected to slow down, which, in turn, is likely to dampen demand, according to a new multifamily market report by Fannie Mae. The 2019 outlook can be summed up by the report’s tagline—Keeping an Eye on Supply, says Betancourt.

An oversupply?

Looking at this year, job growth is expected to be at 1%, which would produce just 1.5 million new jobs, according to Fannie Mae’s forecast. “Based on that amount of job growth, multifamily rental demand theoretically could be in the range of between 250,000 units to as high as 370,000 units, just as more than 450,000 units are expected to be completed and come online this year,” says the report.

It’s notable that much of the supply that’s coming online this year is concentrated in about 10 metros, some of which are likely to see a slowdown in demand due to limited job growth. This is expected to lead to rising vacancy levels and reduced or negative rent growth in certain submarkets.

“It is important to keep in mind that this slowdown is not expected to be prolonged since, at a national level, there continues to be a shortage of apartments, particularly affordable rentals,” says the outlook. “Rent growth has been outpacing inflation for several years now, and the national vacancy rate remains well below its longer-term average of 6%. Both factors are the result of the nation’s ongoing supply/demand imbalance in many places and are placing stress on the supply of affordable housing.”

The New York metro is expected to see the largest amount of new supply, with more than 52,000 units underway, of which 38,000 are expected to be delivered this year. Based on Moody’s Analytics’ anticipated job growth rate of 0.9%, conservatively the metro could produce demand for only about 21,000 multifamily units, says Fannie Mae.

Washington, D.C., Los Angeles, Dallas, and Seattle round out the top five markets with apartments underway.

Multifamily housing leaders will be keeping a close watch on several areas, where the supply may start to outpace demand.

Boston has nearly 21,000 multifamily units in the works, of which nearly 14,000 are expected to be delivered this year. Based on anticipated job growth, potential multifamily demand of about 9,500 units will fall short of the upcoming supply.

In Chicago, there’s more than 11,000 units expected to come online this year, yet job growth of 1% will conservatively produce demand for only about 9,500 units.

On the other hand, Las Vegas looks to be undersupplied, according to Betancourt. The city became the “poster child” of the last housing crisis, and many developers left the market.

The area’s poised to have strong job growth, 3.1%, which would lead to a demand for at least 6,500 units, but only 2,200 are expected this year, Betancourt says.

It’s a similar situation in Phoenix, where job growth is expected to produce demand for 11,000 multifamily units yet only 7,000 are due this year.

“There’s a mismatch in places where there’s a lot of job growth, but there may not be enough supply to meet demand,” Betancourt says.

Overall, the national vacancy rate is expected to increase modestly this year, mostly because of the new supply that will be coming online.

The vacancy rate was at about 5.5% at the end of 2018, which is still well below the long-term average of about 6%. Even with an uptick in 2019, the rate will likely stay below that mark at around 5.75%, Betancourt says.

Finally, Fannie Mae expects rent growth, which ended 2018 at about 2.75%, to again be positive but slightly lower in the range of 2% to 2.5% this year.

Rent growth is still outpacing inflation, Betancourt says.