Multifamily starts plummeted in August on a monthly and annual basis, according to the latest residential construction report from the US Census Bureau, released Thursday.
In August, the seasonally adjusted rate of starts for buildings with five units or more was 344,000, down 15.5% from a year earlier and down 22.5% from July, the report said.
Total privately owned housing starts stood at a seasonally adjusted rate of 1.28 million, 1.2% less than in the same period last year and 2.6% less than in July.
The single-family segment had a stronger performance in August, a reversal of the previous monthtrend of Single-family starts stood at 918,000 in August, up 5.2% year-over-year and up 7.6% from July.
Fewer new apartments came online in August, likely welcome news operators are still working on the lease. Multifamily project completions were at a seasonally adjusted pace of 302,000 in August, down 35.7% from a year earlier and down 15.9% from July.
Multifamily building permits, which indicate future construction activity, were at a seasonally adjusted pace of 467,000 in August. This represents an increase of 9.4% compared to the previous year and 3.1% less than in July.
Regional variation
Regionally, the West saw the strongest increase in August, with an overall increase of 5.2% in homes under construction from a year earlier. Overall, starts in the Northeast were flat year-over-year, but single-family starts fell 27% year-over-year, suggesting that much of the construction activity was for apartments.
By contrast, the Midwest saw the biggest drop: housing starts fell 10.8% year-over-year in August, even as the single-family sector increased year-over-year. Starts also fell 1.2% year-over-year in the South in August, while single-family activity rose 7.5% year-over-year.
According to Jay Lybik, senior director of market research at Continental Properties, which is based in Menomonee Falls, Wis., developers in the Midwest are facing underwriting problems as rent growth has moderated and forecasts are not as strong as they were a year or two ago.
“Rent growth remains positive and the outlook is good, but in many cases rental growth forecasts are now below the current rate of inflation,” Lybik told Multifamily Dive in emailed comments.
Getting permit approvals in the Midwest has never been easy, Lybik says, and there are new challenges.
“With the high-profile anti-development movements rising to stop data center construction, some of that negative sentiment has carried over into multifamily,” Lybik said. “There are countless cities and municipalities across the Midwest that have enacted residential building moratoriums that further limit where multifamily developers can build new properties.”
The high costs of materials teach builders
Lot and labor shortages are constraining homebuilders as they struggle with rising construction costs in an uncertain economic environmentaccording to the National Association of Builders.
“Higher mortgage rates, rising construction financing costs and affordability challenges continue to weigh on the market and limit momentum for new home construction,” NAHB President Bill Owens said in a statement Thursday.
Construction input prices rose slightly in August and is now up 8.9% from the same period last year, according to an analysis of the latest data from the US Bureau of Labor Statistics by Associated Builders and Contractors.
Last month, many key construction materials saw price increases of 10% or more from last year, including switchgear, iron, steel, softwood, copper wire and various derived metal products, prompting more developers to slow projects, Construction Dive reported.
Development in the current market conditions in general is not easy, according to Lybik. Ten-year interest rates at or near 5% are affecting borrowing costs and potentially valuations.
“If the census data showed that 5+ starts to decline over the next four months of the year, I wouldn’t be surprised,” Lybik said. “And I would actually be happy because then the data would accurately reflect the market conditions that developers are experiencing.”
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