Looking out the window of my flight into Atlanta the other day, I was struck by the massive amounts of unfinished subdivisions and what they can mean for the future of Multifamily. In the Atlanta area alone, there are over 1,500 unfinished subdivisions representing tens of thousands of vacant lots. With the basic infrastructure already in place these unfinished lots stand ready for the housing recovery, and coupled with other economic factors, can spell doom for the Multifamily industry.
These days, everybody is optimistic about apartments. The Multifamily industry is the darling of the real estate world with numerous urban infill projects set to deliver tens of thousands of units in the coming year. While the current financial conditions are conducive to building, the demand for such a large number of units hinges on the millions of young Millennials who will be entering the work force and shunning home ownership in lieu of renting in the urban core.
But what happens if these Millennials stop shunning home ownership? What if the housing market recovers? The renter by choice generation is the first of its kind and the renter by choice mantra stems from a lack of credit and confidence. Both of these could potentially be restored in the coming years. If there is one thing we should know about young Americans, it is that they are confident and they have a short memory.
If this confidence and ability to borrow returns then Multifamily will soon be hurting. There is a stockpile of single family homes and condos that are currently being rented and are just waiting to revert. Combine this with the tens of thousands of undeveloped units in the aforementioned subdivisions and you find quite a bit of competition for the class A product that sits in your development pipeline. Make no mistake, the times are good. But it is the good times that always precede the bubble.