In a market with rising rents and falling vacancy, new construction is likely to:
Correct Answer
B) Increase as returns justify development
Why this is correct: Rising rents and falling vacancy are classic signals of strong market demand and tightening supply. This improves potential returns (net operating income), which justifies new construction as developers respond to profitable opportunities, as noted in the explanation. Why the other choices are wrong: Developers are unlikely to wait for a downturn when current conditions are favorable. Construction does not remain unchanged regardless of conditions; it responds to market signals. While interest rates are a factor, development depends on the balance of supply, demand, and projected returns. Exam tip: Strong rent growth + low vacancy = developer green light. This often leads to the next cycle phase.
Why This Is the Correct Answer
Why this is correct: Rising rents and falling vacancy are classic signals of strong market demand and tightening supply. This improves potential returns (net operating income), which justifies new construction as developers respond to profitable opportunities, as noted in the explanation. Why the other choices are wrong: Developers are unlikely to wait for a downturn when current conditions are favorable. Construction does not remain unchanged regardless of conditions; it responds to market signals. While interest rates are a factor, development depends on the balance of supply, demand, and projected returns. Exam tip: Strong rent growth + low vacancy = developer green light. This often leads to the next cycle phase.
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In the neighborhood life cycle, what characterizes the decline stage?
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Why does an appraiser analyze the market area before analyzing the subject property?
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The principle of consistent use prohibits:
Frictional vacancy in a rental market refers to:
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