Industry News

Market Reporting that Matters

March 2017 Construction Report

Construction Trending Higher

Monday, May 1, 2017


Total residential starts and permits once again swung in opposite directions last month, but the volatile data series is generally trending higher, according to the latest U.S. Census figures.

IN THIS ISSUE:

Half of Top Metros Up, Half Down

Is New Apartment Supply Too Concentrated?

By the Numbers

  • The 1.260 million total residential housing units permitted in the 12 months ending in March were, on a seasonally adjusted annual rate (SAAR), up 3.6% from February and up a whopping 17.0% from March 2016.
    • The annual rate of single-family permits decreased slightly by -1.1% from February to 823,000 but was 13.5% higher than the March 2016 annual rate. Single-family permitting topped 800,000 units for the fourth straight month.
    • Multifamily permits shot up to 401,000 units for the 12 months ending in March, up 18.3% from February and 26.1% more than March 2016’s annual rate. This rate was the fourth time the annual rate topped 400,000 units in the past 12 months.
  • Total residential construction starts of 1.215 million units in the 12 months ending in March were -6.8% lower than February, but 9.2% greater than March 2016. The annual rate of total starts has surpassed 1.2 million units for six of the past 12 months and averaged that amount for the past year.
    • Single-family starts dropped back to an annual rate of 821,000 units in March, down 6.2% from February, but 9.3% higher than March 2016. Better weather in February pulled some of March’s starts into that month.
    • Multifamily starts, at 385,000, were down 6.1% from February, but were 9.1% higher than March 2016. Multifamily starts have averaged 395,000 units per annum in the past 12 months (SAAR), with only one month below 300,000 units.
  • Total residential completions were up 3.2% from February to 1.205 million units, which were 13.4% higher than March 2016.
    • The 819,000 single-family houses completed on an SAAR basis were 7.9% greater than February’s annual figure and 12.2% higher than March 2016’s rate.
    • The 374,000-unit annual rate for multifamily completions was down 4.6% from February’s revised rate of 392,000 units, but up 15.4% from March 2016 -- 50,000 units higher than last March. 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 March 2017 were up strongly from the March 2016 rate in the South (19.4%) and moderately in the West (9.2%). They were down modestly in the Midwest (-2.5%) and sharply in the Northeast (-14.9%).
  • Annual single-family starts were up in the Northeast (19.0%), South (14.5%) and West (6.2%), but down in the Midwest (-8.6%).
  • Multifamily construction starts declined by more than one-third in the Northeast (-36.3%), but were up almost the same percentage in the South (34.1%), and increased moderately in the West (16.1%) and Midwest (14.7%).
  • Annual total permits increased by almost one-third in the Northeast (32.7%) and about one-quarter in the West (24.5%), but the South (14.6%) and Midwest (4.9%) saw more modest increases.
  • The annual rate of single-family permits increased in all regions, led by the South (17.3%) and followed by the West (13.3%), Midwest (5.8%) and Northeast (3.8%).
  • Annual multifamily permits jumped in the Northeast (75.3%) and West (50.3%), while the South (8.0%) and Midwest (2.8%) also reported positive gains.
  • Single-family completions fell in the Northeast (-9.2%), but increased in the West (21.5%), Midwest (14.4%) and South (11.7%). Multifamily completions increased in all regions (on an SAAR basis). The West (33.7%) led all regions, followed by the Northeast (19.3%), South (6.9%) and Midwest (6.5%).

Half of Top Metros Up, Half Down

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


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Nine of the top 10 metros remained the same as in February, but a few metros changed positions. The top 4 remained the same, but Denver and Atlanta switched the Nos. 5 and 6 positions. Washington, DC and Phoenix returned to their previous spots, but Austin leapfrogged from No. 11 to No. 9, moving Houston and Chicago each down one spot.

Six of the top 10 metros issued fewer multifamily permits in the 12 months ending in March 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 56.9%. Houston’s 53.5% decline is attributable to the pullback in development in that market.

Dallas, Los Angeles, and Atlanta continued to slow, while Austin declined from last year despite moving into the top 10 this month. Development is ramping up in Seattle, Denver and Phoenix as each permitted at least 3,700 units more than last year. Washington, DC had a moderate gain in multifamily permits of 1,140 units.

With declines in three of the top four apartment markets, the annual total of permits issued in the top 10 metros – 137,600 – was 22% lower than the 177,353 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-27th ranked metros. A year ago, permits issued in the top 10 metros almost equaled the 11th-54th ranked markets.

Non-top 10 metros that permitted at least 2,000 more units than last year included Minneapolis (+3,129), Raleigh (+2,975), Fort Worth (+2,664), and Jacksonville (+2,148). Declines of at least 2,000 units occurred in Miami (-2,036), Bridgeport (-2,059), and Nashville (-4,554).

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

 

Is New Apartment Supply Too Concentrated?

Anecdotal claims from industry professionals have stated that about 50% of new apartment supply delivered to market in recent years has been in a handful of metros.

At a surface level, it is not surprising that a large portion of new supply has been delivered in the nation’s largest metros. People will always need shelter, and developers recognize the need to deliver housing units (i.e. apartments) in heavily populated areas.

What may be surprising to some, however, is that the overall share of new supply to the top five construction markets is actually much lower than 50%, though the share in the top 15 markets is closer to that mark.

From 2014-2016 – a period in which the largest amount of new supply has been delivered to many markets since pre-recession years – an estimated total of 959,500 units were delivered in the 500-plus Axiometrics-tracked metros.

 
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An estimated 234,500 units (or roughly one-quarter of national supply) have been delivered in five markets alone. Of these five, two of the markets (New York and Houston) have had more than 60,000 units delivered during the three-year time frame. Dallas’s 47,000-plus units ranks third nationally. Los Angeles and Austin round out the top five.

The nation’s top 10 markets have received more than 38% of all new supply. Extending that list to the nation’s top 15 markets, we begin to see some truth in the claim that 50% of new supply has been in a few select metros. The nation’s top 15 markets have received more than 462,000 new units between 2014-2016, more than 48% of the nation’s new supply.


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Perhaps the most unexpected inclusion on the top 15 list is San Antonio. However, San Antonio is the nation’s 24th largest metro based on 2016 population estimates, with more than 2.4 million residents, making it a more understandable addition to the list. Austin is ranked only 31st in population, but this metro is dominated by the University of Texas and has a strong rental population.

Texas features four of the nation’s top 15 new supply markets. Amazingly, these four metros alone account for over 16% of the nation’s new supply during the three-year period, which highlights the state’s sustained construction boom.

What has been driving development in these top metros?

Population growth and job growth (two closely linked variables) may not explain all the development in these metros, but they certainly explain a significant portion of it.

Job growth and apartment market performance go hand in hand, and when jobs are continually being added to an area, new supply often follows closely behind. Theoretically then, the top job-growth markets (in terms of their total job gain from 2014-2016) should also have, in general, the most apartment construction.


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A quick glance at the top 15 job gain markets reveals there is overlap between the top job gain metros and the top new supply metros. New York, Dallas and Los Angeles are once again three of our top five markets, meaning these markets are adding more jobs and more new supply than almost anywhere else in the nation.

More than 2.84 million jobs have been added in the top 15 job-gain markets in the past three years, almost 57% of the roughly 5 million added nationally.


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Only Austin and Charlotte made the top 15 new supply markets and not the top 15 job gain markets. (These markets are, however, in the top 15 markets in terms of percentage job gain).

One notable job-gain market with relatively little new supply is Riverside. Riverside has been one of the nation’s strongest performing markets in terms of rent growth in recent years though, which easily points back to the market adding lots of jobs but not much new supply.

San Francisco – another outlier – shows strong job growth with relatively little new supply. This is primarily due to the relative lack of suitable building sites for multifamily properties in the area.

Population growth is theoretically another factor that should correspond with new supply.

The nation’s top 15 population-growth metros have added a total of almost 2.18 million people from 2014 to 2016, almost 48% of the national total of more than 4.56 million.


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While it should be noted that the top 15 population growth metros are not a one-for-one match when it comes to new supply metros (see above table), the similarity between 48.2% of new supply and 47.7% of population growth is staggeringly similar.

Orlando and Tampa both exhibit solid population growth, but relatively low new supply totals by comparison. This may reflect strengthening single-family markets in these two metros, which also attract a large number of retirees.

So, the question posed in the title is no, it does not appear that apartment construction is overly concentrated in only a few markets – at least disproportionally to their job and population gains. Typically, the metro areas attracting new residents and more jobs are where apartment developers are concentrating new construction.

 

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 March 2017 were:

  • City of Los Angeles (11,022 units)
  • City of Seattle (8,978 units)
  • City of Denver (7,188 units)
  • City of Chicago (7,067 units)
  • City of Dallas (7,032 units)
  • City of Atlanta (6,903 units)
  • City of Austin (5,638 units)
  • Borough of Brooklyn (5,581 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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