Regarding the September 2003 column by Mark Obrinsky [vice president of research and chief economist of the National Multi Housing Council], “What is the Right Level of Apartment Construction?” the article comes to the conclusion that current levels of apartment construction are well-suited to demand. The methodology that arrived at this conclusion, however, seems flawed. The author states that condos, co-ops and other non-rental housing represent a distinctly different market than market-rate apartments, though he acquiesces that they do compete to some extent.

I would argue that multifamily, condo and single-family markets are inextricably linked. Multifamily owners are currently losing renters to condo and single-family homeownership because of record single-family home construction, low interest rates and low down-payment programs. These factors, in turn, are creating a huge drag on demand, especially for Class-A, market-rate housing.

A proper assessment of the multifamily market must somehow measure how much “leakage” of demand the apartment market experiences over time in order to truly calculate whether supply and demand are near equilibrium. If such a leakage number was currently incorporated into the numbers when calculating demand, I would estimate that the results would not be nearly as rosy as the author portrays. Instead, they would likely show an oversupply of new construction in the intermediate term.
William T. Hyman
Managing Director and Co-Director
PW Funding Inc.