Dive Brief:
- Starts for properties with two or more housing units dropped 19% month over month in December to a seasonally adjusted annual rate of 473,000 units, according to the U.S. Census Bureau and The Department of Housing and Urban Development.
- Despite the year-end drop, for 2022 as a whole, two-plus unit starts exceeded a 500,000-unit pace for the first time since the Great Recession, according to the National Association of Home Builders. The 943,000 apartments under construction are a 24.9% increase over a year ago.
- Many starts were concentrated in only a few markets. Dallas; Phoenix; New York City; Austin, Texas; and Atlanta had between 38,000 to 51,000 units under construction at the end of 2022 — accounting for 23% of all construction activity in the nation, according to fourth quarter 2022 data from RealPage Market Analytics.
Dive Insight:
December’s multifamily numbers came in below the expectations of Doug Duncan, chief economist at Fannie Mae, although he said the segment is often volatile. “Multifamily permits were up 5.3 percent to a seasonally adjusted annual rate of 600,000, but, despite outperforming single-family building in 2022, we expect multifamily construction to end 2023 at a much slower pace as higher interest rates weigh on financing costs and rent growth continues to slow,” Duncan said
Overall, housing starts were 1.4% below the revised November estimate of 1.4 million and are 21.8% below the December 2021 rate of 1.8 million.
Single-family housing starts ended the year down more than 10%, which was their first decline since 2011. However, single-family starts increased 11.3% above the revised November figure of 817,000.
As single-family starts decline, multifamily developers could see benefits as materials such as lumber become more available for apartment construction.
“Seeing the single-family projections coming to a much slower pace is a big indicator with regard to the availability of the groups we can partner with on our projects,” said J.B. Curry, president of Indianapolis-based TWG Development.
Developers of wood-framed, garden-style projects are seeing a direct benefit, according to Ryan Davis, CEO of Witten Advisors, a Dallas-based firm that provides apartment companies with advisory services.
“There's a considerable overlap with the single-family side in terms of just the knowledge to construct those properties,” Davis said.
However, many multifamily developers will face difficulty finding financing in 2023, which should curtail starts.
“If you don’t have a deal already in process, or you just have some land and you don’t have the entitlements, then you’re just going to press pause,” Davis said.
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