Multifamily market performance is influenced greatly by development activity.
The industry has been expecting a decline in construction for a few years, but that slowdown has been slow in coming.
The latest monthly data from the U.S. Census Bureau indicates still high levels of construction, but no significant acceleration.
The Census gives three principal construction measures: units receiving permit approval, starts and construction pipeline (units under construction) for multifamily assets with at least five units (including for-sale product, although the vast majority is rental).
Construction Starts Total 278,000 Units Through Q3
In 2018, construction began on 360,300 units, up 5.1% from 2017. In Q3 2019, starts totaled 99,600 units, a 5% gain y-o-y. Ytd 2019, starts totaled 278,000 units, essentially on par with the prior year (0.2%). Q3 statistics indicate a momentum acceleration.
September’s annualized seasonally-adjusted figure (327,000 units) was down 28.3% from August and 5.8% from September 2018. The directional trend for H2 2019 is not yet clear.
Q3 Multifamily Permits Rise 20% Year-over-Year
Permitting activity also provides an indication of development momentum. In 2018, 427,400 multifamily units received permit approval, about the same as 2017 (+0.6%). Ytd through Q3 2019, 340,600 units were approved, 7.6% above the prior year. Q3’s 121,900-unit total was up 19.7% year-over-year.
At the end of September, the Census reported that 622,000 multifamily units were under construction (seasonally-adjusted rate). The figure represents deliveries over the next two to three years and is up 4.4% over the prior year.
The under-construction total first reached 600,000 in Q3 2016 and has stayed close to that level since, thereby reflecting continued peak development, but no acceleration.
The extended time period needed to complete projects in recent years has also contributed to the high under-construction totals.
Recent Starts Totals Below Prior Cycle Peaks
For the past few years, U.S. multifamily starts have reached high levels for this cycle.
The recent and current totals pale in comparison to the phenomenal development phases of the late 1960s/early 1970s, late 1970s and mid 1980s. In those periods, starts were well above the current levels.
The peak year was 1972 with 906,200 multifamily starts.
By Jeanette Rice, Americas Head of Multifamily Research, CBRE.