This is an excerpt of the Multifamily Forecast from August 2007.
• Following a decade of relative stability, multifamily housing starts fell in 2006 and are forecast to fall further this year and next on a year-over-year basis. However, multifamily starts should stabilize by the first half of 2008 and begin to show signs of modest recovery during the second half.
• Subsidized rental apartments, most of which benefit from low-income housing tax credits, have become a larger and relatively stable share of overall multifamily rental production.
• There was a large increase in the share of multifamily starts devoted to for-sale units (condominium and co-op units) starting in 2004. The condo share of multifamily starts reached 45 percent by 2006 as condos surged and production of market-rate rental units fell. The condo share of multifamily starts has been falling recently and is forecast to fall back to around its historical norm by 2009.
• Rapid price increases, low interest rates, and loose lending standards encouraged investment/speculation in the condo market during the 2003-2005 housing boom, encouraging production of condo projects as well as conversions of rental projects to condo ownership.
• The eventual bursting of the speculative bubble left builders with excess supply of multifamily for-sale units. Meanwhile, rents have been increasing. The result has been a recent movement back towards building market-rate rental units as well as conversions back from condos to rental apartments.
• Even as condo production has fallen, condo starts still exceed completions, suggesting that a large number of units will be coming on the for-sale market during the coming year —adding to the supply glut and encouraging more conversions to the rental market.
