Factors combine to slow multifamily activity

August 01, 2001 |

Another 315,000 housing units will be started in multifamily buildings this year, a number not significantly below the 335,000-unit average that has been added to the nation's multifamily housing stock yearly during the past five years. This year's slowing economy will bring slower job and income growth; this in turn will bring household formations slightly below their historical average as more 18- to 25- year-olds opt for another year or two at their childhood home.

Multifamily starts during 2000 were down a slight 0.2 percent from their 1999 level. But the current dollar spending to construct last year's 338,000 multifamily units was about $27.8 billion, or 2.4 percent more than during 1999. Through the first five months of 2001, construction was started on a total of 132,100 units in multifamily buildings. This was 5.6 percent below the January through May 2000 multifamily starts total, while during the same period of time 0.7 percent more single-family homes were started than a year ago.

Building permits bode well

Nevertheless, year-to-date trends in building permits — a very solid leading indicator of multifamily starts activity three to six months in the future — suggest that the market won't soften much more over the balance of 2001. The total number of permits issued for construction in buildings with five or more units was 5.7 percent greater during January through May 2001 than through the first five months of last year.

Multifamily permit trends were highly variable across the different parts of the nation through the first half of this year. Despite the nationwide increase in the total number of multifamily permits issued through the first five months of 2001, five of the nine regions of the country actually saw permits for multifamily starts fall below their level of a year earlier. But the gains were concentrated in those areas of the country that have year after year added the largest number of units to the nation's stock of apartments and condominiums.

In fact, the three highest-volume multifamily states all recorded solid gains in permit totals through May.

Regional trends in multifamily permits

(Units receiving permits through May)

No. of units Percent change
Source: U.S. Department of Commerce
New England 2,009 +2.7%
Middle Atlantic 9,330 -11.7
East North Central 14,580 -7.5
West North Central 7,475 -5.1
South Atlantic 43,104 +9.3
East South Central 4,613 -28.5
West South Central 15,462 +35.2
Rocky Mountain 18,194 +29.9
Pacific Coast 19,359 -0.1
TOTAL 134,126 +5.7

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