Multifamily Permits Continue to Rise on Annual Basis

Recent trends in multifamily permitting, which is a volatile indicator of multifamily construction, nevertheless show that there's strong developer interest in building apartments in the post-Great Recession environment.

Washington, D.C.—Recent trends in multifamily permitting, which is a volatile indicator of multifamily construction, nevertheless show that there’s strong developer interest in building apartments in the post-Great Recession environment. The U.S. Census Bureau reported recently that June residential permitting numbers were actually down compared with May (there’s the volatility), but consistently up during most of 2012 when compared with last year.

Privately owned multi-housing units authorized by building permits in June were at an annualized rate of 755,000 units, down 3.7 percent from the revised May rate of 784,000 but 19.3 percent above the June 2011 rate, according to the bureau. The June multifamily permit number of 220,787 marks eight consecutive months of permitting above 200,000 levels, driven by developers and investors gearing up to take advantage of the strong apartment market fundamentals.

“We are expecting these permits to turn to completions by mid-to-late 2013, with 2012 apartment completions remaining well below historical levels,” notes Axiometrics president Ronald G. Johnsey. He adds that since the slowdown in apartment market fundamentals during the second half of 2011, fundamentals rebounded strongly with annual effective rent growth of 3.8 percent and year-to-date rent growth at 3.9 percent through June 2012, even though job growth has been anemic over the past four months.

According to the bureau, the top five MSAs for multifamily permitting for the trailing 12 months ending June 2012 were Dallas (10,939 units); New York (10,380 units); Houston (9,624 units); Los Angeles (7,990 units); and Austin, Texas (7,694 units). Washington, D.C.; Seattle; Denver; and Atlanta each added more than 4,000 units for the same period. The bulk of the supply is being delivered into the urban core of these markets.

Despite slower than expected job growth in June 2012, the job growth to multifamily permitting ratio for the U.S. remains high, at 11.5 compared to the ratio of 11.7 during June 2011, says Axiometrics. The ratio is based upon current period job growth (June 2012) divided by multifamily units permitted a year ago (trailing 12 months ending June 2011). According to Axiometrics, the long-term average ratio with positive job growth is 5.0.