Multifamily Drives Double-Digit Gain in Housing Starts

Multifamily starts are at their highest level seen in decades, while single-family construction remains plagued by rising mortgage rates and materials costs.

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Housing starts posted a double-digit gain in August thanks to a big uptick in multifamily production, though single-family starts remained tepid.

According to data from the US Department of Housing and Urban Development and the Census Bureau, overall housing starts increased 12.2% to a seasonally adjusted annual rate of 1.58 million units in August from a downwardly revised July reading.

That figure represents the number of housing units builders would begin if development kept the same pace for the next year.  And within that number, single-family starts increased 3.4% to a 935,000 seasonally adjusted annual rate and are down 4% year-to-date. Meanwhile, starts in the multifamily sector increased 28% to an annualized 640,000 pace.

Experts say the slowdown in single-family homes is due to a combination of factors, including (predictably) higher mortgage rates and increased building costs.

“Single-family production is running at a weakened pace due elevated mortgage rates and high construction costs that have led to a major slowing of the housing market and exacerbated housing affordability,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga. “The slowdown in the single-family market has been reflected in our builder surveys, which have posted declines every month in 2022.”

Jing Fu, NAHB’s director of forecasting and analysis, says the starts report is “more evidence that the housing recession is deepening for the single-family market.”

“Expected additional tightening of monetary policy from the Federal Reserve, falling builder sentiment and a 15.3% year-over-year decline in single-family permits points to further weakening for the housing sector,” Fu says. “The one bright spot is multifamily construction, which remains very strong given solid demand for rental housing.”

The number of apartments under construction (890,000 residents in 2-plus unit properties) is at the highest level since the first quarter of 1974, according to NAHB. But tightening Fed policy and the impact of inflation on materials, as well as a shortage of skilled construction labor, are likely to continue to plague the overall building sector, which Dodge Construction Network chief economist Richard Branch recently said is “at a crossroads.

“Construction starts are likely to move sideways over the second half of the year and potentially stall as the calendar shifts into 2023,” Branch said.