Apartment Construction Slowed in 2020, Without the Pandemic’s Help
Developers are on track to deliver half as many apartments in metro Denver this year as they did last year, marking the second-largest dropoff in new apartment construction of any major metro area, according to a report from RENTCafé and Yardi Matrix.
Nationally, apartment deliveries are expected to drop 12% compared to last year as builders cope with labor shortages, difficulties in obtaining financing and permitting delays, the report said. Some locations also implemented temporary construction bans during the early weeks of the pandemic, although Colorado categorized housing construction as an essential activity.
Of the 20 most active metros for apartment construction, 13 are expected to see fewer new units. Miami is expected to see the biggest percentage decline at 53%, followed by Denver at 51%.
While it might be tempting to point a finger at the pandemic, delivering a multi-family project takes years of planning, said Doug Ressler, senior analyst and manager of business intelligence at Yardi Matrix. After financing is in place and construction underway, developers tend to push through.
“Once it became evident late last year that rent growth was slowing and more units were slated for delivery, many projects stopped both because they couldn’t get construction financing and also because there were insufficient construction crews available. Prices for construction also rose at almost 5% a month, so the whole industry slowed down,” he said in an email.
Over the past five years, metro Denver has added about 47,000 apartments, including 11,618 last year, according to Yardi Matrix. This year, Yardi Matrix expects 5,695 new units will be added, which will take the metro area from a leader to a laggard in apartment construction.
One area where the pandemic could create trouble for landlords involves shifting attitudes about urban living. As people try to socially distance, they are leaving more densely populated areas, contributing to higher vacancies and lower rents in places like New York City and San Francisco. The region’s apartment construction is heavily concentrated in central Denver rather than the suburbs.
But metro Denver remains a place where people want to live. The region had a big drop in apartment construction in 2017, only to see completions come roaring back in 2018. Earlier this summer, Apartment Insights, a local firm, counted 22,000 apartments as under construction in the Denver area with 40,000 in the planning pipeline.