According to May census data, multifamily housing starts fell 41.6% in a single month, while single-family housing starts remained relatively flat.
Apartment construction just fell off a cliff.
New home construction data for May released by the Census Bureau on Tuesday showed housing starts were down 15.4% from April and 8.7% from the same month last year.
But the headline numbers understate a much larger decline. Multifamily housing starts fell 41.6 percent in a single month, falling from 486,000 to 284,000 on a seasonally adjusted annual basis.
Single-family housing starts, on the other hand, remained largely unchanged, down 1.9% to 882,000 units, a decline that is statistically indistinguishable from being flat within the Census Bureau’s own margin of error.
Single-family homes aren’t collapsing, they’re collapsing.
A superficial reading of May’s data starts off as a big bad month for home construction, but what’s missing is the division underneath. Currently, single-family homes and apartment complexes do not live together.
“Single-family housing starts tell us where housing construction is actually headed. Rather than falling off a cliff, housing construction is slowly descending,” said Maor Greenberg, Spatial’s co-founder and CEO.
The number of single-family home permits in May was 886,000, slightly higher than April’s revised figure of 881,000. It’s not growth, but it’s not deterioration either.
“So this is a plateau, not a steady decline,” Greenberg told Inman. “But a plateau at the lower end is not a recovery.”
Greenberg said permit numbers are a leading indicator of future construction starts and are currently showing a flat decline.
“Completions are delayed and pipelines are not being refilled, meaning the construction schedule for the second six months of this year will be quieter,” he said.
Rates, costs and affordability
Greenberg says the multifamily story is simpler and more painful.
“Rate, material costs and affordability are all moving in the same direction, rather than being three separate stories,” Greenberg said. “Fees are the first thing that comes into play because multifamily projects operate on a pro forma basis with construction loans that only work at specific interest rates.”
Greenberg said that when financing is expensive and uncertainty increases, the math breaks down and apartment starts fall by 41.6 percent. “Single-family homes don’t have the same financial burden,” he says.
Even for a data series known for its high volatility, it is unusual for it to fluctuate so much in a single month. “I’m surprised by the magnitude of the decline in multifamily housing,” Greenberg said. “A 41.6% drop in apartment starts in one month is dramatic.”
Construction input prices rose at the fastest annual rate since the pandemic in May, according to an analysis by the American General Contractors Association.
One potential bright spot: A tentative ceasefire in the Iran conflict could bring down fuel costs over time, but analysts expect price relief to be gradual.
shrinking instead of growing
Starting more units does not necessarily mean more units will be available immediately. However, starting fewer units means less supply in the future. The math is simple and disadvantageous for those hoping for supply-side affordability pressures to ease.
Greenberg noted that in a country that already has a housing shortage, fewer homes are being built and completed than a year ago.
“The supply of new homes on the market is shrinking, not increasing,” he said. “For those looking to buy or rent, that means the affordability squeeze on the supply side won’t ease any time soon. The supply squeeze will continue to keep prices and rents up.”
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