With a surge in new apartments, Chattanooga added nearly 34% more housing units than it did jobs over the past decade, raising concerns by a housing economist of a potential oversupply in the market.
Home builders and Realtors insist the single-family housing market in Chattanooga remains strong with relatively lean inventories. But a new study by Apartment List suggests the growing share of Chattanooga's housing stock being added in apartments could be creating at least a temporary glut in parts of the local rental housing market.
"We consider building permits and job growth to be key indicators of the supply and demand for housing," said Chris Salviati, a housing economist for Apartment List. "From 2008-2018, the Chattanooga metro area issued permits for an annual average of 3.5 (more housing) units per 1,000 residents and added an average of 2.5 more jobs per 1,000 residents. This places Chattanooga in the range of having an oversupply of new construction."
In a balanced market, Salviati said a new housing unit should be built for every one to two new jobs that the economy adds.
By the numbers
13,380 - Number of new jobs added in metro Chattanooga in 2008-2018, or 2.5 jobs per 1,000 residents18,483 - Number of building permits in metro Chattanooga in 2008-2018, or 3.5 units per 1,000 residents13.3 % - Share of building permits for multi-family units in metro Chattanooga in 1990-200523.2% - Share of building permits for multi-family units in metro Chattanooga in 2006-2018, up from 13.3% in the previous 15 years33.9% - Share of building permits or multi-family units nationwide in 2006-2018, up from 23.4% in the previous 15 years.Source: Apartment List
Chattanooga's pace of housing additions compared with its jobs growth exceeded most markets in the United States over the past decade, according to building permit data.
But in Chattanooga, like most markets, the pace of home starts still sputtered after the housing collapse of a decade ago and home starts for single-family houses have remained below pre-recession levels due to tighter controls by lenders and more caution by borrowers following the Great Recession.
"We certainly are not seeing signs of any oversupply in the market and our homes continue to sell well," said Jay Bell, president of the home building company Bell Development, which builds new homes in more than a half dozen Hamilton County subdivisions. "In many segments of the market, we still seem to be catching up with the demand."
Home sales in Chattanooga rose last year to a record high and the average sales time Realtors take to sell the typical single-family home in June was 45 days, according to multiple listing service data compiled by the Greater Chattanooga Realtors association. That was only about a third of the 126 days it took to sell the typical Chattanooga home coming out of the Great Recession in 2010.
Chattanooga's biggest change in the housing stock has come in apartments, including the addition of 3,223 apartment units and 1,917 beds for students at the University of Tennessee at Chattanooga in and around downtown since 2015 and hundreds of more apartment units still under construction.
John Wise one of the biggest downtown apartment developers, said Chattanooga's rental market has plenty of inventory right now "and the party is over" for developers cashing in on the appeal of downtown housing, at least for the immediate future.
Nonetheless, quoted rental rates in the downtown market continue to rise, although many apartment projects are now offering discounts and bonuses for new tenants to fill the vacancies being created by the new projects coming online. Although vacancy rates have increased in the downtown apartment market, the levels remain reasonable, according to downtown developers.
A study by the real estate firm of Cushman & Wakefield in the fourth quarter of 2018 found that the multi-family vacancy rate in Chattanooga was only 3.7% and median rental rates grew last year by a healthy 2.7% to an average effective rent of $908 a month.
"The market's vacancy rate is a historic low of less than 4.0%, indicating a supply-constrained market," Cushman & Wakefield said in their report on the Chattanooga market last year.
The planned addition of more than 1,000 additional apartment units and hundreds of other condos and single-family homes in and around downtown may push up that vacancy rate this year.
But Amy Donahue, marketing director for River City Co. - a downtown development agency which studies the local market - said she is not worried about any apartment glut in the market.
"I don't think this translates to an oversupply of apartments," she said, noting that earlier market studies by the Noell Consulting Group
Nationwide, while employment has grown to a record high, housing starts remain below the pre-recession level, according to Apartment List data. Last year, the total number of new housing units permitted in the United States increased to 1.32 million units, but that total remained 38.2% below the pre-recession peak reached in 2005.
The lowered level of new construction is being driven by a lack of new single-family housing, while the number of multi-family permits surpassed its pre-recession peak in 2015.
Prior to the Great Recession, the number of new housing units permitted in the U.S. had been on a steady upward trajectory for 15 years, increasing from 1.12 million in 1990 to a pre-recession peak of 2.16 million in 2005. Most of these new housing units came from a boom in single-family home construction which grew by 49% in that 15-year period.
"As the national housing market collapsed amidst the subprime mortgage crisis, new construction ground to a halt, with building permit issuance bottoming out at the lowest level ever recorded in 2009," Salviati said. "In the recovery years that followed, multi-family housing construction rebounded fairly quickly, driven by a trend toward urbanization that increased demand for housing in and around city centers. The number of multi-family units permitted surpassed its pre-recession peak in 2015 and has since maintained that pace."
Nationwide, the number of single-family housing units permitted last year was still barely half the number permitted in 2005.
Contact Dave Flessner at email@example.com or at 757-6340.