Dive Brief:
- Starts for buildings with five or more units dropped 51.7% year over year to a seasonally adjusted rate of 278,000 in May, according to a report from HUD and the U.S. Census Bureau.
- Developers pulled permits for a seasonally adjusted rate of 382,000 apartments in buildings with five units or more in May, a 31.4% YOY drop. At the end of the month, 898,000 units were under construction, an 8.6% YOY decrease.
- Overall, housing starts came in at a seasonally adjusted annual rate of 1.3 million in May — a 19.3% decline YOY. Single-family builders broke ground on 982,000 million homes — a 1.7% YOY decrease.
Dive Insight:
Multifamily developers completed 479,000 apartments in buildings with five or more units in the same period, a 0.8% YOY increase.
While there is much concern about new supply, deliveries can also benefit developers, managers and owners. As projects come online, more contractors become available, which may mean lower costs for developers still in the market to build.
“We’re also seeing some of the subcontractors come back to actively pursue work,” David Cocanougher, president of the multifamily division at Dallas-based Leon Capital Group, told Multifamily Dive. “Usually, we’re chasing them, and now they’re looking for opportunities.”
In addition, new properties provide management firms with new business opportunities. For ownership groups, new deliveries offer buying opportunities.
For instance, Austin, Texas-based Palladius Capital Management recently bought two new construction properties in lease-up.
“We’re taking on the lease-up risk, but it was such an attractive basis below replacement cost,” Palladius CEO Nitin Chexal told Multifamily Dive. “If you have a medium- to long-term view, you’ve got to spend 12 to 18 months dealing with the supply. But once you push through that supply overhang, that's where you're going to start to see rents squeeze higher.”
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