Dive Brief:

• Builder and developer sentiment on the outlook for apartment and condominium construction maintained its strength in the fourth quarter of 2016, edging up two points from the prior quarter to a mark of 55 on the National Association of Home Builders’ Multifamily Production Index.

• Scores above 50 indicate that the market is picking up, while scores below 50 show conditions worsening. The index has consistently tracked above the breakeven mark for five years.

• The three components comprising the MPI remained in positive territory during the fourth quarter, with low-rent units unchanged at 54, market-rate rentals up one point to 58 and for-sale units three points higher at 53.

Dive Insight:

Multifamily developers are bullish on the segment’s fundamentals, but a flurry of units coming online in the country’s largest metros suggest saturation ahead for some, forcing rents down.

Chicago, for example, is expected to see rents begin to decline by the second half of 2017 as the apartment rental market there reaches capacity. Inventory in that city is expected to be up 150% from mid-2005 by 2018, according to data from Appraisal Research Counselors, although a slew of corporate relocations is helping to fill spare inventory in the upper tiers of the market.

Supply in that category is also beginning to outpace demand in Washington, DC. A recent analysis of Census Bureau data by Greater Greater Washington found the District added 4,682 new units in 2016, the second-most since the government agency began tracking the figure in 1980. The growth has occurred primarily in multifamily construction, and is concentrated in three emerging neighborhoods.

The multifamily category, particularly apartments, rebounded quickly after the recession as home mortgage lending tightened and a slew of young adults sought housing. Developers reacted to that demand, particularly in major cities with strong job markets. As those projects come online, however, the subsequent oversupply has investors backing off future projects.

A report by Axiometrics cited in The Wall Street Journal earlier this week noted that the number of new multifamily units is expected to hit its highest level in 30 years in 2017. For renters, that could mean a loosening in rent prices, which are up 26% from 2010, according to the report.

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