New supply of apartments could drag on rent growth as soon as 2013 in some markets, according to analysts at Keefe, Bruyette & Woods.
Starts and permits in multifamily construction continue to outpace year-ago totals, though remain below 20-year averages. Multifamily starts increased 75% in April from the year-ago period while permits rose 12.5%, according to Census Bureau data released Wednesday.
KBW analysts expect apartment construction growth to continue, though it could hamper rising rental costs by 2014 as more supply hits the market.
But in areas with new supply expected by next year — including Dallas, Seattle, Raleigh, N.C., San Jose, Calif., and Austin, Texas — rental costs could taper off earlier.
The Washington, D.C., metro area is of particular concern to the KBW analysts, who note the area will see new supply increases starting late this year. Analysts said they don’t expect as robust job growth in Washington as in other cities mentioned in the report.
The March unemployment rate came in at 5.5% for the Washington metro area, down from 5.8% both a month and year earlier, according to the Labor Department.
With homeownership levels at a 15-year low, apartment demand and rental rates are up. Rental costs increased 2.7% in April compared with a year earlier, according to Labor Department data.
Overall, KBW analysts said an earlier boom-bust cycle in the early 1990s suggests it could take until 2014 to reach peak levels in multifamily starts. April starts totaled 217,000, below the 20-year average of 250,000.