Zumthor likely meant the “ability to construct concrete things” as the translation of representations - complicated drawings and specifications - into physical real estate. That has never been easy. New research about what stimulates (or suppresses) supply growth at an MSA level now offers a clearer way to estimate future inventory with greater accuracy, an insight that has long eluded real estate investors.¹

Let’s start with some facts. Nearly half of all projects in a planning phase - defined as any time before construction starts - are abandoned. For those that survive, the road through planning is long: Ground-up projects that move through pre-development, including design and approvals, take an average of 18 months from conception to construction-start, weighted by project cost. Once construction begins, however, the outcome is nearly certain, more than 99% of projects are completed.

When investors talk about “supply risk” in a market, they often under-appreciate how challenging, and how time consuming, it is to get a new project under construction. It’s hard to blame them. Most of us were professionally trained to think of supply and demand as tightly linked; as demand increases, supply will follow. That logic works for software and digital media, but it is a material over-simplification in real estate: Supply does change relative to demand - which is to say that supply is elastic - but only in certain circumstances, and supply elasticity varies considerably by market.

To begin, it’s important to understand that development projects in the planning phase are not future supply, they function more like options. Owners incur pre-development costs for the opportunity, but not the obligation, to make a large capital investment in a financial asset. The real decision only arrives at the end of the planning process, and often the option is not exercised. What’s behind their thinking? The single most important factor influencing any construction start is the price appreciation for the to-be-built asset during the planning period.

The figure below, taken from the research, illustrates the dynamic. It shows the relationship between construction starts and growth in property values in a local market in the year after planning begins, demonstrating that higher appreciation materially “increases the probability that a project successfully advances to construction.”

Appreciation impacts construction activity in two distinct ways: 1) it stimulates planning starts, and 2) it determines whether projects already in planning proceed to construction. Because new planning starts take years to become inventory, true supply elasticity is driven primarily by No. 2, the “green-lighting” of shovel-ready projects. Whether those projects move forward depends largely on recent economic conditions. A supply wave, therefore, requires both a deep pipeline of shovel-ready projects and positive economic conditions. This core finding should inform how investment firms view the new supply threat when making their commitments.

The researchers also examined what types of properties are likely to be abandoned, shedding light on how supply elasticity varies by asset type, geography and project size. For example, planning periods and abandonment rates were higher in California and northeastern cities, which likely does not surprise our readers.

Specifically, large California cities have average planning periods of one year, about double the planning time for projects in large Texas cities. Also, in California “abandonment rates are above 50 percent for every large city… and below 50 percent for every large city in Texas.”

The research also found that multifamily projects on average have both the longest planning periods and the longest construction timelines, which we thought was ironic given all the attention our national housing shortage receives. And it turns out size matters - larger projects are less likely to be abandoned but they carry meaningfully longer planning and construction timelines. In all cases, planning periods (in green below) are much more variable than construction periods (orange).

The research used Dodge Data & Analytics as a data source, examining individual construction projects from 2003 to 2024. The graph below illustrates the evolution of projects in planning and under construction over that time. Of note, planning starts dropped significantly during the GFC and dropped again in 2024, driving decreases in the total number of planned projects net of construction and abandonment.

Zumthor’s idea of construction as the translation of abstractions into something real is useful here, but incomplete. For investors, the more revealing abstraction isn’t the building itself—it’s the planning pipeline. An economic upswing—with lower cap rates and stronger real estate fundamentals—doesn’t summon new buildings into existence; it decides which shovel-ready projects survive. The implication is simple—and uncomfortable. Supply risk is not about what’s proposed or even approved. It’s about how much optionality exists today. Markets with thin planning stock are structurally slow to respond, even in good times. Markets with deep pipelines can move quickly, for better or worse. The next wave of supply isn’t a mystery. It’s already drawn, waiting to see whether it’s worth building.

Who: Conservice

What: The largest third-party utility management company in the U.S.

The Sparkle: Twenty-six-year-old Conservice handles all-things utilities for real estate owners. Data, analytics, tenant billing, contracts with utilities and even procurement options, they are a full-service partner serving an industry in which everyone buys power but few understand how to optimize their spend. We like them because they’re experts in a required but non-core real estate competency. TPG, the massive alternative asset investor, just agreed to take a majority stake in the company.

Do you know about geoguessing? It’s a game tailor-made for real estate people. You are shown a photograph and have to guess where it was taken. The closer you are to the right location, the more points you get. To make your first time easy for our American readers, here’s a geoguessing game focused just on the U.S. that gives you five pictures from the same place.

Link: https://pudding.cool/games/where/

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