U.S. Multifamily Starts Fall 16% in September

Soaring lumber prices have helped constrain multifamily development, according to a new report on the housing market by Marcus & Millichap.

Image by Greg Isaacson

Multifamily construction starts in the U.S. dropped 16.3 percent in September, following a 25.9 plunge in August, as apartment developers continued to shift their focus away from urban high-rises and demand for single-family homeownership remained elevated, according to a new report by Marcus & Millichap.

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The fourth-quarter special report on housing finds that single-family home sales, residential construction and renovations picked up shortly after stay-at-home orders were lifted in the spring. Contributing to the rebound was a shift in preferences as many people reevaluated their living arrangements and added features such as home offices and outdoor entertainment areas to their list of desired upgrades.

New-home sales leaped 32.1 percent year-over-year in September, although they dropped 3.5 percent month-over-month, representing the first monthly decline since April. Factors that could have contributed to the monthly dip include rising home prices—the median home price climbed 15.2 percent over the past 12 months to $317,300—as well as tighter mortgage underwriting and a dwindling supply of new homes.

Suburban strategy

Homebuilders are more confident than ever despite these challenges, and single-family home starts grew for the fifth consecutive month in September. The decline of multifamily starts in recent months, on the other hand, could be related to a shift in development strategies as builders deemphasize high-rises in the urban core in favor of garden-style properties in the suburbs.

Marcus & Millichap reports increased demand for larger, more affordable apartment units that accommodate working from home and virtual schooling, along with access to outdoor areas, which is driving the change in development focus. A surge in lumber prices, which are roughly 65 percent above the same level last year, is also pushing multifamily costs beyond some developers’ budgets, which has led to a number of projects being delayed or canceled.

Rising lumber costs have also driven up new home prices, which could boost demand for rental units, the report adds. Additional constraints on single-family home construction include a shortage of existing buildable lots and tight supply of skilled labor. These factors are expected to bolster demand for homes and apartments in the suburbs and in secondary and tertiary markets.

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