"This increase in new construction is congruous with the strength in market fundamentals - strong performance is serving as a catalyst for new development," said Ryan Severino of Reis Inc. "If anything the amount of new completions that have been delivered up to this point is low relative to the strength of the apartment market. "
There were just over 200,000 multi-family housing starts in 2012, according to the U.S. Commerce Department, far lower than the annual average of 340,000 over the past decade.
"We are still woefully short of what's going to be coming in terms of demand," says Buck Horne, a housing analyst at Raymond James. "Lennar is going where the demand is going to be. They're going where they know they can make money."
Lennar has positioned itself with offices in Atlanta, Charlotte, Chicago, Dallas, Denver, Miami, Orange County, San Francisco and Seattle, all markets where apartment demand is high, despite a recovery in the housing market.
"You've got to be very selective about your locations," warns Miller. "We stay pretty thoughtful about where there are imbalances and too much building going on. This is not a market where you can start building any place."
Miller is not concerned with competition from investors in the single family rental market, again focusing on location as his leg up. A lot of the foreclosed properties being absorbed by hedge funds and the like are not concentrated in the top markets targeted by Lennar. They are either inner city or third-level suburban, according to Miller.
Expanding household formations, coupled with credit and down payment-challenged new home buyers will benefit the rental sector for the foreseeable future. Many renters will eventually move to home buying, especially as their families expand. For Lennar, getting those potential buyers into a Lennar rental can only benefit the builder in the future.
"In many instances, the very first introduction to housing is through rentals and through branding and knowing consumers. Being there gives us a leg up and advantage in terms of new home sales later," says Miller.
Eric Audras | Photoalto | Getty Images2012 will likely not see as robust rent growth as 2011; housing affordability continues to improve and renting is becoming ever more expensive than owning. A huge surge in rental demand and comparatively little apartment supply created a boom in multi-family construction in the last year, but with the single family housing market slowly beginning to show signs of life, the concern among banks and investors is that all that supply will hit the market just as rental demand drops off. Based on preliminary estimates of Q4 '11 activity, multi-family loan origination volume increased to $82 billion in 2011, up from $50 billion in 2010, according to Chandan Economics. Understandably, some lenders and investors are starting to ask questions. "While 2012 should be another good year for apartment REITs, there is concern amongst some investors and managements that market expectations may be hard to beat," say analysts at Sandler O'Neill. "Based on discussions with managements, revenue growth should match sentiment but expense growth may be the wildcard." Rents have been rising steadily as apartment vacancies drop and 
Despite the fact that the fourth quarter is usually a weak period for the apartment market, given that most families decide to move and lease new apartments during the second and third quarters when school is out, national apartment vacancies fell by half a percent in the fourth quarter of 2010, from 7.1 percent to 6.6 percent, according to Reis, Inc. Close to 58,000 new units were filled. The good news is that it appears to be a real trend; this latest drop in the vacancy rate follows one of the sharpest drops on record during the third quarter, on top of the fact that the fourth quarter is usually prone to seasonal weakness. As a result of this new demand, asking and effective rents each grew by 0.5 percent. It's also encouraging that effective rent kept pace with asking rent, which means that landlords are having to make fewer concessions. Experts at Reis cite an improving economy and improving sentiment about the labor market. This latest data also appears to prove that the apartment sector bottomed in the fourth quarter of 2009. It is now leading the recovery in commercial real estate, as the office and retail sectors don't get the boost from the change in housing demand. Investors may now take a harder look now at real estate investment trusts that specialize in the apartment sector, like Sam Zell's Chicago-based Equity Residential (EQR), Palo Alto, CA-based Essex Property Trust (ESS), Northern Virginia's Avalon Bay (AVBPRH), or Denver-based UDR (UDR). Many of these REITs will be looking for bargains to buy, and they will likely find them. Multi-family continues to outpace all other sectors in loan defaults in commercial mortgage backed securities. The multi-family delinquency rate rose 68 basis points in December to 16.48 percent, according to a new report from Trepp. Despite a loosening in commercial lending recently and attempts to resolve troubled loans, the delinquency numbers continue to go up, which means more properties will be available for distressed prices. It begs the question, will the recovery in the apartment sector help to bring down these loan delinquencies? "In the near-term, it probably won’t help much," notes Ryan Severino, an economist at Reis. "A lot of those CMBS deals were underwritten at the top of the frothy market, before the recession, with very unrealistic expectations about future vacancy rates, rent growth, etc. " Severino says the recovery still needs far more time to catch up to where we were before the recession, that is, to the expectations used when those original CMBS deals were underwritten. Questions? Comments? document.write("