One thing I noticed when the year-end party circuit was in swing was that lenders have about had it with apartments, at least in Pittsburgh. After tow or three years of cautiously making loans to one developer after another, the Pittsburgh banking community seems ready to throw dirt on the apartment boom.

They may indeed be correct. After all, the combined total of apartment starts for 2013-2014 is four times what the average number of units started was for the previous 13 years. I’ve gotten several calls in the last three months from appraisers trying to estimate absorption and looking for starts information. I understand the mentality, especially in Pittsburgh, that looks for the ride to end. Here’s where I think the problem may be in that thinking.

First, there really isn’t any time in the working careers of Pittsburgh lenders and appraisers that is a comparable market reference – at least if the career was here. Population, particularly in the urban core, has been declining for much of the past 30 years so there hasn’t been an apartment driver like in the south or in major landlocked cities like New York or DC.

More important are the supply/demand dynamics. There is net migration into Pittsburgh and there are between 8,000 and 18,000 new jobs being created in the region annually – depending on whose estimate you’re using. Each new job essentially  creates a new household (if you compare Pittsburgh existing households and total employment, the numbers are almost identical). So take the 8,000 job number and do this math: there will need to be 8,000 new dwelling units created for those workers. Single-family homes are stuck at about 2,000/year with no increase expected in the next year or so. Even with 3,838 units started in 2013, there would still be a shortfall of more than 2,000 units.

Currently, some 3,500 units of apartments are in the pre-construction pipeline. Even with most of the 2,500 units from 2014 still to be delivered, that means there won’t be enough apartments to match up to job creation/household formation again in 2015 or 2016, unless the employment picture goes backward significantly – something no one foresees. And none of this takes into account the facts that suggest that the Millennials are starting to emerge from sharing apartments or their parents’ basements.

I imagine that the lenders are going to drag the apartment development down somewhat but I expect that developers will just find another source of funding seeking higher yields than the Treasury or their local bank is giving. With an impressive recent history of rental growth, apartments should still be a hot ticket in 2015.

Apartment development will probably push the envelope a few more years in fact, at least until the growth in rents and birth rate creates the next boom in home ownership.