Coronavirus exacerbates apartment shortage, but activity is looking up
More than half of developers reported construction delays during the pandemic — and now almost 88,000 apartments that were planned won’t get finished this year.
About 371,000 apartments were set to hit the market in 2020, up 23% from apartments delivered in 2019. But thanks to the coronavirus pandemic, only 283,114 apartments are now expected to hit the market in 2020, down 12% from last year, according to Yardi Matrix, a Santa Barbara-based real estate software company. Those numbers are coming off of already depressed inventory. After hitting a 30-year peak in 2017 and 2018, construction dropped 8.2% in 2019, mostly because of rising construction costs, a labor shortage, and slowing rent price growth which narrowed builders’ profit margins.
“In the long term, it [slow construction] will continue to exacerbate housing affordability issues. The country needs to build 328,000 new apartments annually at all price points to meet the current demand,” said Bob Pinnegar, president and CEO of the National Apartment Association.
Coronavirus disruptions were caused by supply chain (25%), labor (24%) and permitting interruptions (14%) this spring. Some 15% of contractors reported delays due to coronavirus infections reported on the construction site, according to a June 9-17 survey by the Associated General Contractors of America.
The pandemic has also created an unstable landscape for developers’ future construction plans: Demand has shifted toward suburbs and small urban markets, alleviating demand for apartments in large cities.
“The rise of multifamily units may lead to an oversupply of apartment buildings, especially in city centers given the evident recent shift in consumer preference for single-family homes in the suburbs,” said a statement by Lawrence Yun, chief economist at the National Association of Realtors.
Though still not matching early projections, developers ramped up apartment construction this summer. Developers started construction on 56.7% more apartments and condos in July than in June, and 10% more multifamily units were under construction in July than at the same time last year. Plus, the government authorized 467,000 apartments and condos in July, up 27% from 368,000 in June and up over 50% from 303,000 permits in July 2019, according to the U.S. Census Bureau.
“Construction starts have begun to increase from their April lows and there is cautious optimism that as the year progresses construction markets around the country will begin a modest recovery,” said Doug Ressler, senior research officer at Yardi Matrix.
Sarah Paynter is a reporter at Yahoo Finance. Follow her on Twitter @sarahapaynter
Read the latest financial and business news from Yahoo Finance
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.
More from Sarah:
The best cities in the US to buy a vacation home you plan to rent: study
There’s a record number of vacant rental apartments in Manhattan