Construction Starts And The Delivery Lag

Property supply cannot respond quickly to demand, and the delay is not an inefficiency to be fixed. It is a physical feature of construction that shapes every cycle.

The length of the pipeline

Between a decision to build and a building that can be occupied sit land acquisition, design, approval, financing and construction, each taking substantial time.

Approval processes alone can run for years in constrained jurisdictions, and construction of a substantial building adds a further multi-year period.

The result is that a project responding to today's conditions delivers into conditions that nobody can observe at the moment the decision is made.

Why this produces overshooting

Strong demand and rising rents make projects viable, so many developers begin at roughly the same time, each responding to the same signal.

None of them can see the others' plans in full, so the aggregate pipeline exceeds what any individual developer anticipated when they committed.

Those projects then deliver together, and supply arrives in a concentrated wave into a market that may no longer need it.

The same lag operates in reverse

When conditions weaken, projects stop being started, but the ones already underway continue because stopping mid-construction destroys value.

Supply therefore keeps arriving into a weakening market for a period after new commitments have ceased entirely.

The absence of starts during that period then produces a supply gap years later, when conditions may have recovered and nothing is ready to deliver.

Reading the pipeline as an indicator

Because of the lag, permit and start data describe future supply rather than current conditions, which makes them among the more useful forward-looking indicators available.

They are not predictions of price. They describe how much competing space will exist, which is one input into future conditions among several.

Permits also overstate delivery, since not every permitted project proceeds. Starts are firmer evidence, and completions firmer still, at the cost of arriving later.

Why the lag varies by place and type

Jurisdictions with streamlined approval and available land deliver faster, which shortens the cycle and reduces the size of any overshoot.

Constrained jurisdictions have longer lags, which tends to produce sharper rent movements because supply cannot arrive in time to moderate them.

Building type matters too. Smaller and simpler structures move through the pipeline faster than large complex ones, so different sectors within one market can be out of phase.