Builders did what now?

A puzzle in Florida, but also elsewhere

• rents continue to fall, as ample supply comes online, relative to demand

• mostly, builders have slowed new dev, but not everywhere . . . and the places they chose are odd choices

• this has to end badly, right? Or maybe not

• Florida is different this time aorund

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Recaps from last year (one and two).

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The builders did what now?

There’s something underway that seems so likely to end badly, that it’s kind of hard to figure how it’s still underway.

Random Walk has written variously about how new residential development has slowed, for the most part. It’s got nothing to do with zoning or a housing shortage, and everything to do with the opposite of that: there is ample supply to meet demand, such that rent growth has slowed, and at prevailing rates, new dev just doesn’t pencil.

Apartment List

Nationally, rents have been slowly declining since interest rates started to rise ~3 years ago.¹

If your costs go up (for labor and capital), then you better be able to charge more to cover the difference, and you can’t do that, if rents are flat.²

Builders are pretty smart, though, and they know this better than anyone, and so for the most part, new permitting has slowed.

The places where builders are building

But not everywhere.

There are some places where new permits are going like gangbusters:

Redfin

• Austin is atop the leaderboard, well-above its pre-pandemic pace, but below its peak pandemic highs

• Two Gulf-side Florida metros are second and third: Cape Coral and North Port, both running well-above pre-pandemic and pandemic levels.

So, if you trust the permitting data, then it would seem like Austin, Cape Coral and North Port are the places with the most new inventory on the way.

The places where supply is already piling up

That, by itself, is not all that remarkable.

The remarkable thing is that they also happen to be among the “worst performing” and well-supplied real estate markets in the country.