Multifamily Construction Spikes in March

Dees Stribling, Contributing Editor

Washington, D.C.–The U.S. Department of Commerce reported on Friday that housing construction bumped upward more than expected in March, driven in particular by multifamily development. Construction of multifamily properties, which has a history of volatility, took an upward swing of 18.8 percent in March compared with the previous month, to an annualized rate of 88,000 units.

The multifamily surge drove the overall housing numbers to an annualized 626,000 in March, 1.6 percent higher than in February. Single-family home construction edged down 0.9 percent for the month, however.

The upswell in multifamily isn’t generally considered a harbinger of a new rush to build properties, observers say. There are still too many macroeconomic factors holding down demand for both for-sale and rental properties, as well as blocking the financing necessary to get projects out of the ground.

“Although multifamily starts rose in March, the increase wasn’t statistically significant,” Mark Obrinsky, chief economist and vice president of research at the National Multi Housing Council, tells MHN. “The six-month moving average has been virtually unchanged over the last five months. It’s unlikely that new construction will rise much so long as construction finance remains scarce.”

The trend of low multifamily construction was well established by last year. According to the NMHC, in 2009 the apartment sector saw an all-time post-World War II low in construction: fewer than 100,000 new units.

But it’s also argued that demographics are on the side of multifamily in the long run, both the rental and for-sale sides of the business. “Demographic trends, changing lifestyles and our national need to grow more sustainably all point to strong long-term demand for apartments,” Doug Bibby, NMHC president, noted recently in a statement. “In fact, experts predict that apartments will be the first real estate sector to bounce back when the economy recovers.”

There’s optimism about condos as well–long-term optimism, that is. “It’s going to take a couple of years to absorb existing condo inventory, as we saw tremendous speculative building and some poorly planned projects in fringe areas,” Michael Golden, co-founder of Chicago-based @properties, tells MHN regarding the Chicago market in particular, though the prediction likely applies in other metro markets as well.

“But as the Echo-Boom generation enters the workforce and the housing market over the next 10 years, we’ll definitely see added demand and development,” Golden continues. “The thing to keep in mind is that this generation of buyers will be coming out of rental buildings that are newer, every bit as luxurious and twice as green as the condominiums that were built during the boom.”