Mulifamily Starts Plunge Whopping 74% Y-O-Y to 78K Units; Can They Fall Further?

By Anuradha Kher, Online News EditorNew York–New home construction fell to its lowest pace on record in April, according to the Census Bureau’s latest report. Multi-housing starts for April are down to 78,000 units, a 42 percent drop from last month and a whopping 74 percent drop year-over-year. This dragged down the overall housing starts by 12.8 percent last month from March, to an annual pace of 458,000 units.While some forecasters were disappointed, as they had hoped for a modest increase, others were pleased that the supply is reflecting the demand in the market. “It’s about time the number fell to this level,” Peter Donovan, head of the Multi-Housing Group at CB Richard Ellis, tells MHN. “We have been expecting this to happen for a while. In fact, the numbers have so far been higher than we expected.” Donavan says this is an indication that construction money is hard to find, the overall market is down and vacancy rates are at an all time high. The multi-housing starts have been falling consistently since the beginning of this year, except for a slight uptick in February. “I don’t know if they will fall any lower, but I know they will stay low for a while, till we see some stability in the market,” says Donovan.Although multifamily construction numbers are volatile month-to-month, many believe that the drop in apartment and condominium construction reflects the excess supply and tight markets for construction loans on larger projects.Steve Wendel, Co-Head of Deutsche Bank Berkshire Mortgage (DBBM), tells MHN, “With the big investors to the LIHTC program—Fannie Mae, Freddie Mac and big banks—having dropped out of the investor market, and with very little availability of debt financing, there is no money to pay for new construction. In most markets, occupancy levels are low and rents are falling. In these circumstances, new construction just doesn’t pencil out. “If construction costs do not decline in tandem with the rents, there is no bottom. Eventually, increases in population, combined with immigration, will increase demand for multifamily over the medium-term.”