So why is that happening?

There appears to be a number of factors, according to a recent article in the Wall Street Journal.

There’s a supply side constraint:

Another obstacle cited by developers: construction loans. Matt Allen, chief operating officer of the Related Group, a developer based in Miami, said he can get a construction loan for roughly 75% of the cost of building an apartment complex. But lenders will cover only 50%, on average, of a condo complex’s cost because of the greater risk, he said.

There’s a demand side constraint:

As a result, the Federal Housing Administration, which backs mortgages made to low-wealth buyers, tightened its lending standards in a series of moves from 2008 to 2012. Under the new rules, in order for the FHA to insure mortgages in a given condo complex, at least half of the units must be owner-occupied and no more than half can be FHA-insured, among other requirements. For condo projects under development, at least 30% of units must be under contract for sale before the FHA will start backing mortgages there. Mortgage giants Fannie Mae and Freddie Mac tightened their standards as well.

And there are macroeconomic factors:

On the entry-level end, tepid job growth early in the recovery and the younger generation’s affinity for flexibility have fueled demand for rentals. Apartment rents are up nearly 16% since 2010, according to Reis Inc.

Notwithstanding the above, could this be a post-recession policy pendulum that has swung too far in one direction?

So why is that happening?

There appears to be a number of factors, according to a recent article in the Wall Street Journal.

There’s a supply side constraint:

Another obstacle cited by developers: construction loans. Matt Allen, chief operating officer of the Related Group, a developer based in Miami, said he can get a construction loan for roughly 75% of the cost of building an apartment complex. But lenders will cover only 50%, on average, of a condo complex’s cost because of the greater risk, he said.

There’s a demand side constraint:

As a result, the Federal Housing Administration, which backs mortgages made to low-wealth buyers, tightened its lending standards in a series of moves from 2008 to 2012. Under the new rules, in order for the FHA to insure mortgages in a given condo complex, at least half of the units must be owner-occupied and no more than half can be FHA-insured, among other requirements. For condo projects under development, at least 30% of units must be under contract for sale before the FHA will start backing mortgages there. Mortgage giants Fannie Mae and Freddie Mac tightened their standards as well.

And there are macroeconomic factors:

On the entry-level end, tepid job growth early in the recovery and the younger generation’s affinity for flexibility have fueled demand for rentals. Apartment rents are up nearly 16% since 2010, according to Reis Inc.

Notwithstanding the above, could this be a post-recession policy pendulum that has swung too far in one direction?

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