Apartment construction hits 25-year high

The boost to apartment construction suggests that job gains are encouraging the creation of households.

August 12, 2014 |

The Commerce Department data released on August 19 suggests that, looking at a rolling 12-month total of multifamily starts without any seasonal adjustment, construction has hit its highest level since 1989 for the year ending in July.

This is less significant for economic growth than single-family homes, which have a bigger multiplier effect on both consumer spending and job growth, the Wall Street Journal reports.

“We will take what economic activity we can get, but our housing market model was designed in the U.S. to build a lot of single-family homes for owners, not multifamily homes for renters,” Diane Swonk, chief economist of Mesirow Financial, wrote Tuesday on the company's blog.

The boost to apartment construction, however, suggests that job gains are encouraging the creation of households, and that consumers' needs will require more construction, both for renters or for owners.

Renting has become popular, at least in part, because many Americans cannot afford the down payment for a house or can't get a mortgage, and others prefer the flexibility that comes with a lease. 

Soon, however, rising rents could encourage renters to buy homes. A Labor Department report notes that rents were rising at their fastest pace in five years this July, up 3.3% from last year.

With apartment construction hitting a 25-year high, it's not surprising that apartment company stocks have been doing well. Shares of Equity Residential (EQR -0.13%) and AvalonBay Communities (AVB +0.22%) closed Tuesday at their highest levels since 1993 and 1994, when the companies went public, respectively.

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