Several factors are coming together to limit new construction.
New construction of housing peaked at over 2 million units in 2005, and then collapsed 74% to 529,000 in 2010, as reported by Economic Indicators, a U.S. government publication. The combination of continuing foreclosures and a shortage of construction financing will block much new housing construction.
Yet some observers predict that there will be a building boom in rental apartment units in the near future in order to accommodate a rising population. A closer look convinces me that no such boom will appear in 2011, and even new apartment construction in 2012 and 2013 will not reach very high levels.
From 1997 to 2006, multifamily housing construction clustered around 342,000 new units per year, but then plunged by 66% to only 112,000 units in 2010. The Congressional Budget Office estimates that the U.S. will need 1.6 million additional housing units annually to keep up with population growth. That is three times as much as the number of all new housing units built in 2010.
Single-family construction is stuck at about 530,000 units per year due to massive foreclosures and high unemployment, both likely to persist for two to three more years. Consequently, optimistic apartment builders see a need for construction of many more rental units to meet basic housing needs.
Not so fast
This rosy view ignores several factors that will constrain new apartment construction in the next two to three years...
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