The apartment construction boom sweeping Southern California and other parts of the country has about two more years to go before playing itself out, a UCLA report said.
Developers are responding to the collapse of the single-family housing market in the recent economic downturn. It prompted increased demand for rental units as some homeowners lost their property and potential buyers retreated from the volatile market.
Many investors perceive apartments as a safe, potentially lucrative investment, said the report from the UCLA Ziman Center for Real Estate. With 10-year Treasury bond yields below 2%, institutional investors are seeking higher yielding alternatives. Climbing rents offer the prospect of higher future income and capital appreciation.
“Of course this boom in multifamily construction will have within it the seeds of its own destruction,” UCLA economist David Shulman said. “As rents rise, consumers will shift out of rental into ownership units.”