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By Karl Smith

A big surprise for me last year was the lackluster performance of multi-family homebuilding. Yes, the boom was big in percentage terms, but not as big in absolute terms as I had expected.

However, looking over the data from the last month or so, it appears so far that multi-family homes built for rent responded more or less as expected and was itself responsible for the entire boom. What lagged was multi-family homes built for sale.

There are a lot of potential explanations for this, not least of which is much stricter zoning laws than the last condo boom in the 1980s. However, none of those is satisfying to me because of a single factor: Florida.

Florida is where we would have expected much of the boom to happen, and Florida is where we saw some of the first signs of "criticality" in the housing market. That is, high-equity investors buying condos and turning them into rentals, and in doing so stabilizing the market such that it became safe for low-equity investors to do the same.

This amplification then creates a race where investors rush in to snap up properties before the market stabilization they themselves are creating leads to increasing prices, which destroys their excess return. This seemed to happen in Florida early, and I remember Brickell condos selling in early 2011 for well above the cost of construction. Yet, no boom?

Not really sure what is going on there, but it warrants investigation. I would have expected similar -- though slower to come online -- things in Sarasota-Tampa Bay and Jacksonville. These areas alone should move the national dial.

Source: Short Note On Multi-Family Homebuilding