Will too many apartments pinch the rental market?

After all, last year saw the most apartment construction since 2001, with 161,518 new units delivered, according to Reis. Cities like Houston, Austin and Washington, D.C., are seeing an apartment boom, which could start to ease rising rents.

"We work in an industry that has a huge propensity to overbuild." Severino said. "I don't think it's going to be a massive overbuilding, but I do think even with demographics so favorable it's going to be difficult if not impossible for demand to keep pace with supply."

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Still, landlords are able to collect higher rents, which rose 3.5 percent in 2014, the best performance since 2007. Rents are setting new records, and the improving labor market, including faster wage growth, will give landlords at least in the short term more leverage to raise rents.

"It is surprising, and an outlier, to have a strengthening fourth quarter when everyone is going home for the holidays," said Alexander Goldfarb, an analyst with Sandler O'Neill. "Rent (price) growth in 2014 surprised everyone."

But as developers start to see too many cranes in major urban markets, they are now setting their sights, too, on the suburbs, where there has not been a building boom and where potential returns are far higher.

Both Avalon Bay and Essex Property Trust are starting to focus their investment dollars on the suburban markets. Essex, which is concentrated on the West Coast, is especially well-positioned.

"Housing is unaffordable in San Francisco, so Essex has been capitalizing on the fact that rent growth has been tremendous," Goldfarb said. "In their development projects, the yields have been way above what they expected."

On the flip side, multifamily real estate developers who also invest on the East Coast, like Equity Residential, are finding the competition from condominium developers in New York City fierce. Both land and labor are now so expensive that the numbers don't work.

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Will too many apartments pinch the rental market?