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August 2017 Construction Report

Residential Construction Continues Moderate Pace

Thursday, October 5, 2017

Annual total residential construction starts were down slightly in August, while forward-looking building permits were up moderately, according to the latest U.S. Census figures. Much of the contradictory movement was generated by the volatile multifamily sector, which has been up and down frequently.

Single-family permitting and starts continued their healthy pace, as the housing market’s gradual improvement remained on track.



Top Permitting Places Virtually Unchanged

Multifamily’s Share of Total Permitting Decreasing

By the Numbers

  • The 1.3 million total residential housing units permitted during the 12 months ending in August 2017 were, on a seasonally adjusted annual rate (SAAR), up 5.7% from July and 8.3% from August 2016.
    • The annual rate of single-family permits slipped 1.5% from that of July at 800,000, but was 7.7% higher than the August 2016 rate. Single-family permitting has exceeded or matched the 800,000-unit level in seven of the past nine months.
    • Annual multifamily permits jumped 22.8% from July’s annual rate to 464,000 units, and was 10.2% greater than August 2016’s figure. Multifamily permits exceeded 400,000 units for the second time in three months, but this category also includes condominiums, which are on the rise again.
  • Total residential construction starts of 1.18 million units in the 12 months ending in August were 0.8% less than July but 1.4% more than August 2016. The annual rate of total starts dipped below 1.2 million units for the fifth time in six months, as multifamily starts continue to slow.
    • Annual single-family starts of 851,000 homes were 1.6% greater than July’s annual rate and 17.1% more than August 2016’s. Single-family starts have surpassed 800,000 homes in 11 of the past 12 months.
    • Multifamily construction starts of 323,000 units were down 5.8% from July, and were 23.1% lower than August 2016. Annual multifamily starts averaged 382,000 units during the first six of the past 12 months but only 335,000 for the most recent six months – a 47,000-unit-per-month decline.
  • Total residential completions of 1.075 million units were 10.2% lower than in July but 3.4% higher than August 2016.
    • Single-family completions were down by 13.3% on an SAAR basis from July, but were only 2.7% lower than the August 2016 annual figure.
    • Multifamily completions slipped compared to July (-2.0%), but were 20.8% greater than August 2016. 

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Other U.S. Census statistics of note, comparing August 2017 to August 2016 annual rates:

  • Total annual starts in August 2017 were up in the Midwest (17.6%) on the strength of a large increase in multifamily starts. Meanwhile, starts declined by -21.1% in the Northeast and increased 0.2% in the South and 4.3% in the West as multifamily starts plunged in all three regions.
  • Annual single-family starts were up by double digits in three regions: the Northeast (26.9%), South (22.8%), and West (14.6%). The Midwest decreased by -2.7%.
  • As mentioned, multifamily construction starts declined by double digits in the Northeast (-51.1%), South (-45.5%), and West (-10.3%) but were up sharply in the Midwest (67.8%).
  • Annual total permits declined in the Northeast (-8.5%) and Midwest (-3.6%), with multifamily the culprit once again. Total permits were up in the West (27.0%) and South (6.6%).
  • The annual rate of single-family permits increased in three regions, led by the West (16.4%) and followed by the Northeast (9.4%), South (5.9%). The Midwest region permitted the same number of homes as August 2016’s annual rate.
  • Annual multifamily permits increased sharply in the West (46.7%) and moderately in the South (8.4%), but decreased in the Northeast (-27.3%) and Midwest (-9.9%).
  • Single-family completions increased in the Midwest (21.0%) and West (9.9%), and declined in the Northeast (-4.8%) and South (-12.9%). Multifamily completions were up strongly (on an SAAR basis) in the West (64.7%) and Northeast (23.5%), and increased moderately in the Midwest (6.8%) and South (4.4%). 


Top Permitting Places Virtually Unchanged

The top 10 Metropolitan Statistical Areas for multifamily permitting for the trailing 12 months ending August 2017 were:

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Nine of the top 10 metros remained the same as they did in the previous two months and in the same order. Phoenix returned to replace Miami at the No. 10 spot, dropping the Magic City back to No. 13. Several of the Nos. 11-20 metros moved up or down one or two spots, with Fort Worth rising to No. 20, while San Diego fell from No. 16 in July to No. 21 in August.

Four of the top 10 metros issued fewer multifamily permits in the 12 months ending in August 2017 than they did in the preceding 12 months, but only Atlanta had a double-digit decline in multifamily permits: -22.5%. Although Dallas declined by almost 1,500 units from the previous 12 months, it represented only a -6.8% drop, while Washington, DC and Los Angeles reduced their annual multifamily permit totals by about 2%-3%. Of the six metros gaining multifamily permitting momentum, Phoenix, Seattle, Chicago and Denver each had more than 26% growth.

Houston’s steep pullback in multifamily permits continued, dropping almost 46% from last year to only 6,363 units, and down almost 74% from the August 2015 annual rate. Baltimore (-58.3%), St. Louis (-44.8%), West Palm Beach (-44.0%), Anaheim (-41.8%) and Nashville (-39.7%) also recorded steep multifamily permitting declines from last year.

Multifamily permitting is rising in Denver, Seattle, Oakland, Minneapolis-St. Paul, Chicago, San Jose and Jacksonville. Each permitted at least 2,000 more units than last year, with percentage increases averaging almost 67%. Phoenix, Salt Lake City, Riverside, Reno, Tacoma, Miami and Boston also had multifamily-permit gains of at least 1,100 from last year.

With six of the top 10 apartment markets reporting increases in annual multifamily permits, the annual total of multifamily permits issued in the top 10 metros – 143,278 – was 7.3% greater than the 133,532 issued in the previous 12 months. The total number of permits issued in the top 10 metros was almost equal to the number of permits issued within the 11th-39th ranked metros. A year ago, permits issued in the top 10 metros almost equaled the 11th-34th ranked markets.

Access the latest permit trends tables in Excel format here.

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Multifamily's Share of Total Permitting Decreasing

Two years ago, we examined the percentage of permits for multifamily units (in properties with five or more units) to total residential permits for the U.S. and the top five metro areas for multifamily permitting at that time. What has changed since then?

In 2015, the percentage of multifamily building permits was at its highest level since the early 1970s. The 38.2% nationwide in August 2015 was still lower than its upper range average of about 45% from 1968-1974, but three times higher than its low of 12.3% set in 1993. The ratio can grow or fall from an increase or decrease in multifamily permits compared to single-family, or a corresponding increase or decrease in single-family permits relative to multifamily.

The chart below depicts annual multifamily permit levels by month on a rolling 12-month average from 1961-present, along with the percentage of multifamily permits compared to total residential permits.

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The ratio of multifamily permits to total has declined to about 33% since 2015, a 5-percentage-point drop in the past two years. However, the chart shows that the level of multifamily permitting has remained close to an annual average of about 415,000 units since mid-2016.

What has changed is the level of single-family permitting, as it climbs back from the devastating effects of the housing bubble bust. Single-family permitting, while still trailing historical average levels of more than 880,000 units annually, are climbing and broached the 800,000 annual-average level in August 2017. This compares to the peak single-family permitting level of 1.69 million units permitted at the height of the housing bubble in 2006.

It is also clear from the chart that while the volume of multifamily permitting has leveled off, the number of units permitted and multifamily’s share of the permits may have peaked in 2015. The unusual peak in the ratio in 2008-2009 is the result of the overshoot between multifamily permits that take longer to start and build, and the sharp pullback in single-family permitting resulting from the housing bubble bust. Otherwise, the percentage timeline tends to mirror the level of annual average multifamily permits.

The following chart graphically represents multifamily’s share of total permits ratio for the U.S. and the top five metro multifamily-permitting metros as of August 2015.

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The top four metros were the same in August 2015 as they were in August 2017, and in the same order.. Only Houston dropped out of the top five in the intervening two years, primarily because of the aftereffects of the severe drop in oil prices and its resulting impact on the Houston economy.

Two years ago, these top five metros were at or near 23-year peak ratio levels as apartments (and to a lesser degree, condominiums) comprised a significant share of total residential construction. The peaks are evident compared to the line demarking the year 2015 in the chart. Houston’s peak year was in 2014, when the oil price plunge occurred.

As mentioned before, up or down movement in the percentage could be a combination of increasing/decreasing single-family and/or multifamily permits. In 2015, most of the top five metros were experiencing increasing multifamily permitting and weak but growing single-family permitting. One exception was New York, where the surge in multifamily permitting was caused by the 421-a Property Tax Exemption Program deadline situation, as well as a dearth of single-family permitting.

Returning to the original question: what has changed since 2015? Multifamily permitting declined in four of the top five permitting metros by 6%-74%.. Only Dallas permitted about the same as two years ago.

Not surprisingly, the steepest declines were in Houston (-73.7%) and New York (-49.4%). Metros without a supply-side shock (New York) or demand-side shock (Houston) have seen moderate declines in their multifamily shares of permits as single-family market conditions have improved and demand for multifamily products has remained strong.

By the Numbers

The table below shows multifamily permitting and job gain/growth for some of the top metropolitan areas, with several categorized by state or region.

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The table below highlights multifamily permitting by place. Some of the top places on a trailing 12-month basis through August 2017 were: 

  • City of Los Angeles (11,173 units)
  • City of Denver (9,489 units)
  • City of Chicago (9,317 units)
  • City of Seattle (8,460 units)
  • City of Austin (6,914 units)
  • Borough of Manhattan (5,891 units)
  • City of Miami (5,777 units)
  • Borough of Brooklyn (5,688 units)
  • City of Atlanta (5,674 units)

The top 40 places (out of 5,073 U.S. Census places) for permitting of properties with five or more units were:

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