Credit Crunch Begins to Show Up in Housing Starts

WASHINGTON, DC-The decline in construction starts for apartment buildings isn’t as steep as in the single-family home market, but it is nonetheless significant. According to the latest data from the US Census Bureau and the Department of Housing and Urban Development, starts on residential structures with five or more units dwindled to 251,000. That’s a 16.5% drop from the 301,000 units in July, and a 24.4% decline from August 2007, when developers began work on 332,000 units.

Yet it isn’t sagging demand that’s driving developers to hold or cancel projects. Just like in the stalled sales market, the lack of financing is one of the main factors in keeping starts down. And given market conditions, new starts should continue to dwindle, says Sharon Dworkin Bell, senior staff vice president for multifamily at the National Association of Home Builders. “We’re hearing anecdotally from our members that the lack of financing is having a substantial impact on starts, but it really hasn’t began to show up in a meaningful way in the national numbers,” she states. “The impact will probably be more noticeable in the third-quarter figures because developers are canceling or not moving forward with planned projects due to the financing situation.”

Commercial banks, which have typically provided debt for construction, have tightened their lending criteria significantly, and that’s severely restricted cash flow. “There are still deals getting financed, it’s just more difficult,” says Bell. “In the past, developers would solicit maybe a handful of banks to get financing. Now they have to go out to 10 times as many institutions to get money.”