Industry News

Market Reporting that Matters

January 2017 Construction Report

Multifamily Permits Drop Off

Thursday, March 30, 2017


Total residential starts and permits continued to oscillate in
opposite directions in February, according to the latest U.S.
Census figures.

IN THIS ISSUE:

Top Permitting Metros
Reflect Decline

Authorized, Not Started

  • The 1.213 million total residential housing units permitted in the 12 months ending in February were, on a seasonally adjusted annual rate (SAAR), down 6.2% from January but up 4.4% from February 2016.
    • The annual rate of single-family permits increased 3.1% from January to 832,000 and was 13.5% higher than the February 2016 annual rate. Single-family permitting topped 800,000 units for the third straight month.
    • Multifamily permits declined to 334,000 units for the 12 months ending in February, down 26.9% from January and 15.7% less than February 2016’s annual rate. This rate was the lowest since March 2016 and is further indication that new supply deliveries will moderate after this year.
  • Total residential construction starts of 1.288 million units in the 12 months ending in February were 3.0% higher than January, and 6.2% greater than February 2016. The annual rate of total starts has surpassed 1.25 million units for the past three months after averaging about 1.19 million units for the past year.
    • Single-family starts of 872,000 units were up 6.5%, compared to the previous month’s annual rate, and 3.2% higher than the February 2016 rate.
    • Multifamily starts were down 7.7% from January, but they were 11.2% higher than February 2016. Multifamily starts have averaged 391,000 units in the past 12 months (SAAR), with only one month reporting an annual rate below 300,000 units.
  • Total residential completions were up 5.4% from January to 1.114 million units and 8.7% from February 2016.
    • The 754,000 single-family houses completed on an SAAR basis were 6.5% less than January’s annual figure and 3.0% higher than February 2016’s rate.
    • The 344,000-unit annual rate for multifamily completions was up 39.3% from January and 26.5% from February 2016. Annual multifamily completions were the most since November 2016.

 
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Other U.S. Census statistics of note:

  • Total annual starts in February 2017 were up strongly from the February 2016 rate in the Northeast (48.8%) and moderately in the South (7.7%) and West (4.2%). They were down sharply in the Midwest (-11.4%).
  • Annual single-family starts were up in the Northeast (22.8%) and South (3.7%), almost flat in the Midwest (0.6%) and down slightly in the West (-1.5%).
  • Multifamily starts declined by half in the Midwest (-50.0%), but more than doubled in the Northeast (113.0%), and were up in the South (16.9%) and West (14.3%).
  • Annual total permits increased by almost one-third in the Midwest (32.8%) and increased by 2.5% in the South, but the Northeast (-8.0%) and West (-4.9%) rates declined.
  • The annual rate of single-family permits increased in all regions, led by the South (16.1%) and followed by the Midwest (13.2%), West (10.8%) and Northeast (3.8%).
  • Annual multifamily permits jumped in the Midwest (69.2%), but fell in the West (-30.3%), South (‑26.4%) and Northeast (-16.4%).
  • Single-family completions fell in the Northeast (-24.6%), but increased in the Midwest (17.6%), West (9.2%), and South (0.5%). Multifamily completions decreased (on an SAAR basis) only in the relatively small Midwest region (-65.3%), but recorded strong gains in the Northeast (143.5%), West (40.0%) and South (24.1%).

Top Permitting Metros Reflect Decline

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


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The top 10 metros remained the same as in January, but four metros changed positions. Seattle and Los Angeles switched places at Nos. 3 and 4, while Houston moved down to No. 9, moving Phoenix up one spot. The order of the remaining six top 10 was unchanged.

Four of the top 10 metros issued fewer multifamily permits in the 12 months ending in February 2017 than they did the year before. New York continues to experience sharp declines from its 421-a bulge last year with a drop of 58.8%, followed by Houston’s 49.5% decline.  Dallas and Los Angeles continued to slow, while Atlanta came in about even with last year’s pace of permitting. Seattle, Denver and Phoenix each permitted at least 2,800 units more than last year. Washington, DC and Chicago had moderate gains in multifamily permits of 958 and 1,841 units, respectively.

With declines in three of the top four markets, the annual total of permits issued in the top 10 metros – 136,118 – was 23% lower than the 177,385 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 11th26th ranked metros. A year ago, permits issued in the top 10 metros almost equaled the 11th-55th ranked markets.

Non-top 10 metros that permitted at least 1,800 more units than last year included Fort Worth (+3,471), Raleigh (+2,747), Minneapolis (+2,346) and Jacksonville (+1,852). Declines of at least 1,800 units occurred in Newark (-1,834), Bridgeport (-1,895), Austin (-2,139), Fort Lauderdale (-2,282), Miami (‑2,413) and Nashville (-3,243).

Access the latest permit trends tables in Excel format here.

Jay Denton
Senior Vice President
jdenton@axiometrics.com

KC Sanjay
Sr. Real Estate Economist
skc@axiometrics.com

Chuck Ehmann
Real Estate Economist
cehmann@axiometrics.com

 

'Authorized, Not Started'

Each month, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly release their Monthly New Residential Construction press release with data for building permits, housing starts and housing completions. This eagerly anticipated release is closely watched by economists, developers, lenders, the media and other interested parties. There is, however, one data series in the release that is rarely mentioned and mostly ignored.

That series is New Privately-Owned Housing Units Authorized, but Not Started, at End of Period.

What is this data and is it important? Just as it sounds, this data series represents the number of housing units authorized by building permits or zoning that have not started construction, regardless of when it was authorized. Cancelled, abandoned, expired and revoked permits are excluded.

On average, almost 10% of single-family permits are authorized but not started in a given month, while almost 20% of multifamily permits (in properties with five or more units) are slow to start. Several factors can delay the start of new residential construction, be it single- or multifamily. Bad weather is an obvious cause, but delays in financing, labor and material availability, planning and zoning issues, environmental clearances and other logistical problems also can push construction starts back. While the data series does not include cancelled or abandoned permits, some projects that may be on their way to nowhere are undoubtedly in the mix.

 
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The chart above shows the ratio of multifamily permits authorized but not started to total annual multifamily permits (not seasonally adjusted) since 1990. The long-term average since 1990 is 18.9% (red line in the chart), but that is skewed upward by the recessionary periods in the early 1990s and the Great Recession. Note that the “dot-com bubble” recession of 2001 had almost no effect on this data series, as it did not affect financial markets in the way the other two recessions did. From the late 1990s forward, excluding the Great Recession, the ratio of multifamily permits not started has hovered close to 15%.

Examining the series broken out by Census region, we see that the ratio of multifamily permits not started was higher in the Northeast and South from 1990-2007, although both declined from post-1990s recession highs of between 35%-40% to the 15%-20% range just before the Great Recession. The Midwest and West regions maintained relatively stable ratios from 1990-2007, averaging 9.3% and 14.1%, respectively.


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The Great Recession caused a spike in the ratio for the South region, but especially so for the West, reaching 47.3% in March 2010. The Midwest and Northeast regions barely reacted to the recession, rising slightly to average about 16%, before sliding to an average closer to 11% since 2011. The South is the most active region for multifamily construction, and it stands to reason that with more projects in toto, more projects may be delayed for various reasons, and thus, a higher ratio.

The Northeast region saw spikes in the ratio of more than 25% in June 2015 and again in June 2016 at the outset and anniversary of New York’s 421-a tax credit program’s original expiration date. In the past several months, the authorized, not started ratios of all four regions have converged to about 15%, close to the long-term, non-recession average mentioned above.

Can any inferences be drawn from this data series? Unfortunately, the ratio of units authorized and not started to total multifamily units is more of a lagging indicator. It tells us more about what direction the economy, and thus residential construction, is coming from rather than where it is headed. As seen in the regional chart, the ratios increased after the major recessions.

Still, it is an interesting data series that is almost never reported or discussed and could be useful as an indicator of the current state of the multifamily housing market if there is a prolonged or pronounced increase or shift in the ratio over time.

 

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 February 2017 were:

  • City of Los Angeles (10,982 units)
  • City of Seattle (8,591 units)
  • City of Chicago (7,512 units)
  • City of Dallas (7,489 units)
  • City of Denver (7,260 units)
  • City of Atlanta (7,254 units)
  • Mecklenburg County (5,115 units)
  • Borough of Manhattan (5,063 units)

The top 40 places (out of 4,147 U.S. Census places) for permitting of properties with five or more units were:



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