Which Markets are Oversupplied?

[Nick Gerli]

Building Permits provide a snapshot into what the supply pipeline (new homes and apartments) in a market will look like in 12-24 months time. The more supply dropped into a market, the more growth needed to keep occupancies and rents up.

The graph below shows Building Permits as a % of Existing Housing stock in select markets. 

I'm curious what everyone thinks about this information. Would you be concerned investing in a market like Austin or Nashville given how much permitting there has been lately? Or do you feel like those markets will register enough growth to cover the increase?

Meanwhile, are Pittsburgh and Columbus good markets to get into right now? While their growth rates might be lower, you might feel more confident in the existing rents and value levels given how little supply competition there is. 

This data was collected from the US Census, which conducts a monthly building permit survey for every US metro. 

[Ryan Kelly]

@Nick Gerli Building permits are a good metric to track, but when determining how it affects the market, you also want to measure it with population growth and housing inventory. For Austin, here are some metrics to digest:

2019 New Construction Homes (a one-year record): 18,095 (Statesman article)

2019 Multi-Family New Construction Units (doors): 11,000 (from multi-family broker colleague)

2018-19 Population Growth (metro area): 61,586 (Austin Business Journal)

Property developers, both SFH and multi-family, are only building approximately 30,000 doors per year, which is less than half our annual population growth over a 12-month period. This trend has been ongoing for nearly two decades. Homebuilders could literally double construction and barely keep up with the inflow of population. This is why Austin is at record low supply for housing inventory, which could persist for many years to come.