“While the pipeline in some markets is at worryingly high levels (see Which Markets are at Most Risk of OverDevelopment? below), the national supply is within normal levels,” said Bendix Anderson of National Real Estate Investor.

Mark Obrinsky of the National Multifamily Housing Council (NMHC), also doesn’t believe we are overbuilding multifamily. “The rebound in the single-family home market doesn’t mean that the multifamily market is overbuilt, Obrinsky said.

The construction rate remains below the demand for new apartments — even in the midst of the somewhat  unimpressive economic recovery. “Demand requirements outpace the supply pipeline,” said Jubeen Vaghefi, international director and leader of Jones Lang LaSalle’s Multifamily Capital Markets. “This year, expected deliveries of new product will be 12 percent below historical average delivery levels.”

How Does the Real Estate Cycle Factor Into the MultiFamily Overbuilding?

When kicking around the overbuilding multifamily debate, it is important to note that local real estate development is cyclical. It includes periods of accelerated new growth, oversupply, high vacancies, followed by periods of declining rent, slowed down construction and lower prices. Then, we see an absorption of excess supply, lower vacancies, leading to an increase in prices and rent. This starts the real estate cycle over again with accelerated new construction. And as the economy improves and bank financing becomes easier — a period that we’re in now — multifamily gains momentum.

Which Markets are at Most Risk of OverDevelopment?

While there are experts on both sides of the fence as to whether the nation as a whole is overbuilding multifamily, there are some clear ideas on overbuilding in certain segments of the country in the views of some multifamily finance professionals.

According to Apartment Finance Today’s annual CFO Survey of 100 multifamily finance professionals, markets most at risk for overbuilding include D.C. and Seattle, where 15 percent and 10 percent of the CFO respondents, respectively, indicated as their belief as areas most at risk for being overbuilt.

Atlanta and Jacksonville, Florida are other areas that are in danger of being overbuilt, says Greg Willett, vice president of research and analysis for MPF Research. That said, in Washington and Raleigh for example, Willett is certain that overbuilding is temporary in both those markets. “They’re very attractive long-term investment markets, due to their healthy overall economies and great renter demographics,” Willett says.

Points to Ponder

“There are people who will be making the transition to homeownership sooner and there are people who will be making the transition later. And some never will. That’s always been the case, but that last number will probably be larger,” says Rolf Pendall, a housing expert at the Urban Institute.

The rental culture is changing and not just in real estate. Younger generations are embracing renting. They rent rather than own movies through streaming, they share bikes instead of buying their own (Philadelphia and New York as examples of this growing trend), and they even share cars rather than bearing the cost and responsibility of car ownership (Zipcar is an example).

The multifamily market (both on the construction side and rental side) isn’t going away anytime soon. The fact of the matter is that it is contributing to the nation’s economic recovery, however lackluster that may be. Clearly we’re in the early stages of the multifamily development cycle, but how far away are we from overbuilding?