Multifamily Starts Up From Last Year, But Still Sluggish

Dees Stribling, Contributing Editor

Washington, D.C.–Housing starts edged upward unexpectedly in September, according to the U.S. Census Bureau and HUD this week, but the expansion was led by the development of single-family houses rather than multifamily properties, which tend to exhibit more month-to-month volatility in any case. All together, privately owned housing starts in September were at an annualized rate of 610,000, a 0.3 percent increase over the revised August estimate and 4.1 percent more than the September 2009 rate of 586,000.

Multifamily (five or more units) starts in September were at an annualized rate of 150,000 units, a 6.8 percent drop compared with August. But compared with the same month in 2009, the September 2010 rate represents a 114.3 percent increase. New multifamily construction was at an annualized rate of 70,000 units a year ago, and through the end of 2009 and 2010 never rose above 100,000 units until April 2010. So for August has been the most robust month for U.S. multifamily development in 2010.

The issuance of building permits for multifamily construction, a leading indicator for the industry, likewise dropped in September compared with August, from an annualized rate of permits for 150,000 units to 110,000, a decline of 26 percent. Compared with September 2009, however, permitting dropped only 0.9 percent.

The numbers seem to indicate some interest in multifamily development, but perhaps not as much as would be expected, considering that rents and occupancies have both started to rise, and that demographics favor increase demand for apartments in the coming years. “Multifamily housing starts have rebounded significantly from the recession-induced lows of last fall and winter, but they’re only at half the average level for the 1997 to 2007 period,” Mark Obrinsky, chief economist and vice president of research of the National Multi Housing Council, tells MHN.

“Tighter apartment market conditions has led to greater development in some regions, but in much of the country replacement costs remain higher than sales prices,” Obrinsky continues. “That, along with still-tight debt finance, has kept new construction below the level needed to keep pace with the expected demand increase over the next five to 10 years.”

Keegan J. Bonebrake, managing director of the Chicago-based Borne Co., a multifamily specialist, generally agrees with that assessment. “The correlation between starts and confidence should be strong, yet as a provider of multifamily services to all layers of the capital stack, we see investment and corresponding development activity controlled by a fraction of the sector,” he tells MHN. “Although we have seen an increase in demand from capital sources, the actual number of completed transactions is still limited by the disconnect between buyers, sellers and funding sources.”