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Market Reporting that Matters

May 2017 Construction Report

Residential Construction Slowdown Continues

Wednesday, July 5, 2017

Annual total residential starts declined for the third consecutive month and total residential permits slid for the second month, according to the latest U.S. Census figures. A generally warmer and dryer winter took some of the wind out of spring residential construction. Increasing land and labor costs and availability also are causing headwinds.



Few Changes in the Top Permitting Places

Post-Recession Multifamily Development – Too Much? (Vol. II)

By the Numbers

  • The 1.168 million total residential housing units permitted during the 12 months ending in May were, on a seasonally adjusted annual rate (SAAR), down 4.9% from April but down only -0.8% from May 2016.
    • The annual rate of single-family permits decreased by 1.9% from April to 779,000, but was 6.0% lower than the May 2016 annual rate. Single-family permitting fell below 800,000 units for a consecutive month and experienced its third straight monthly decline.
    • Annual multifamily permits fell 10.1% from last month’s annual rate to 358,000 units, which was 13.1% less than May 2016. After revisions, this is the fifth month in the past six to fall below 400,000 units.
  • Total residential construction starts of 1.092 million units in the 12 months ending in May were -5.5% lower than April, and 2.4% lower than May 2016. The annual rate of total starts fell below 1.2 million units for third consecutive month and declined each of those months, primarily because of the volatility of multifamily starts.
    • Annual single-family starts of 794,000 were below 800,000 units for the first time since September 2016. May’s annual rate was down 3.9% from April but 8.5% greater than May 2016.
    • The 284,000 multifamily construction starts were down 9.8% from April and were an incredible 25.7% lower than May 2016. This is only the second month below 300,000 units since February 2015.
  • Total residential completions were up 5.6% from April to 1.164 million units, which were 14.6% higher than May 2016.
    • Single-family completions increased 4.9% on an SAAR basis from April and were 12.8% higher than May 2016’s annual figure.
    • Multifamily completions bounced back by 12.0% from April’s revised rate to 335,000 units, and were up 18.4% from May 2016 -- 52,000 units more than last May.


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Other U.S. Census statistics of note:

  • Total annual starts in May 2017 were up strongly from the May 2016 rate in the West (17.4%) and moderately in the Northeast (8.8%). They were down in the South (-9.9%) and the Midwest (-11.6%).
  • Annual single-family starts accounted for the total gain in the West (22.2% gain in single-family starts), and the Midwest had an even more impressive 29.0% increase. The Northeast (-3.6%), and South (-0.5%) declined.
  • Multifamily construction starts declined by two-thirds in the Midwest (-67.6%) and by one-third in the South (-33.9%), but were up in the West (8.3%) and Northeast (29.7%).
  • Annual total permits were up in the Northeast (20.4%) and South (1.9%). Authorizations declined in the West (-11.7%), and Midwest (-1.7%).
  • The annual rate of single-family permits increased in three regions, led by the South (8.0%) and followed by the West (6.4%) and Northeast (3.8%). The Midwest (-0.9%) declined slightly.
  • Annual multifamily permits jumped in the Northeast (43.9%), but decreased sharply in the West (-32.8%). The South (-13.4%) and Midwest (-3.3%) also reported net declines.
  • Single-family completions increased in all regions, with double-digit gains in the West (27.8%) and Northeast (21.3%), and moderate gains in the South (9.4%) and the Midwest (1.6%). Multifamily completions more than doubled (on an SAAR basis) in the Northeast (158.2%) and were up strongly in the South (21.3%) and West (19.1%). They were down by half in the Midwest (-50.8%). 


Few Changes in Top 10 Permitting Places

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

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All of the top 10 metros remained the same as in April, with the first six returning in order. Austin moved up from No. 10 to No. 7, pushing Phoenix down one spot to No. 8. Chicago remained at No. 9 while Washington, DC fell from No. 8 to No. 10.

Only three of the top 10 metros issued fewer multifamily permits in the 12 months ending in May 2017 than they did in the preceding 12 months. New York is still declining from its 421-a bulge last year with a drop of 35.3%. Dallas and Atlanta each had double-digit declines in multifamily permits: -16.1% and -12.2%, respectively. No. 13 Houston’s 53.3% decline joined Anaheim (-54.1%) and Nashville (-60.2%) as major markets with steep multifamily permitting declines from last year.

Development is ramping up in Minneapolis-St. Paul, Seattle and Phoenix, as each permitted at least 3,200 units more than last year, with percentage increases averaging more than 60%. Fort Worth, Denver and Chicago also had double-digit gains in multifamily permits with at least 1,500 more units than last year.

With annual declines in three of the top six apartment markets, the annual total of permits issued in the top 10 metros – 141,200 – was 6.6% lower than the 151,232 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-40th ranked metros. A year ago, permits issued in the top 10 metros also almost equaled the 11th-40th ranked markets, a possible indication that the national multifamily permitting trend is leveling out.

Non-top 10 metros that permitted at least 1,500 more units than last year were Minneapolis (+4,066), Jacksonville (+2,498), Fort Worth (+2,213), Raleigh (+1,861) and Reno (+1,530). Declines of at least 1,500 units occurred in Houston (-8,874), Nashville (-5,473), Anaheim (-4,381), Newark (-2,651), Bridgeport (-1,953), Virginia Beach (-1,638) and San Diego (-1,515).

Access the latest permit trends tables in Excel format here.

Please contact us if you have any questions.

Jay Denton
Vice President

KC Sanjay
Sr. Real Estate Economist
Chuck Ehmann
Real Estate Economist


Post-Recession Multifamily Development – Too Much? (Vol. II)

In last month’s Construction Report, we examined whether multifamily development after the Great Recession was much higher than before the recession. In general, the answer was no.

For the markets analyzed, the average number of multifamily permits issued each year pre- and post-recession were remarkably similar, the apartment market research found. The ratio of multifamily-to-total residential went up however, as less single-family stock has been built since the recession.

This month we break down the post-recession multifamily development statistics of a few select markets and look more closely at their apartment properties’ performance of in terms of their average length of lease-up time in months and the average number of units leased per month per property.

The following chart shows the total number of apartment properties in lease-up per month from January 2010-May 2017. The Houston, Dallas, Atlanta and Seattle metros were chosen because they are among the most active apartment construction markets, post-recession, according to Axiometrics apartment market data. All four markets showed a flat-to-declining initial pattern through 2011 and then slowly building from 2011-late 2013. The number of lease-up properties increased rapidly in Dallas, Houston and Seattle from 2013 to mid-2014, while Atlanta was a late starter.

Mid-2014 appeared to be somewhat of an inflection point for Dallas, Houston and Seattle, as the number of new properties in initial lease-up leveled off or declined for a few months. Dallas and especially Houston quickly resumed their upward trends, which have continued to the present day.

Significant increases in the late-arriving Atlanta didn’t happen until early 2015, while Seattle actually settled down to a moderate pace – averaging about 30 properties in lease-up – after 2014. Currently, Houston has 133 properties in initial lease-up, compared to 87 for Dallas, 62 for Atlanta and 45 for Seattle.

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It is easy to see the change in construction volume before and after mid-2014. The table below shows an average increase of 93% in units completed – almost double – per market between both periods (despite a time difference of 4.5 years vs. 3 years).

Examining the performance of these lease-up properties before and after this so-called inflection point, we see differences in the average lease-up time in months and the average number of units leased per month per property. Note that this analysis includes only properties that began leasing activity in or after January 2010 or July 2014 and achieved at least 90% occupancy (stabilized) by June 2014 or May 2017. Properties whose leasing-activity periods straddled the June 2014 inflection point were excluded in order to have a clean data-set comparison.

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While Atlanta was late to the apartment development party, its average lease-up time nonetheless increased by about two months, with average leases per month slowing from 27-21 units per property. Dallas experienced a very similar pattern, with the same lengthening of lease-up time and a decrease of units per property per month of 29-22 units, according to the apartment market surveys.

Average lease-up time in Houston, which leads the country in the number of properties in initial lease-up, increased by five months while the number of units per property per month decreased by seven. Not a terrible (or unexpected) shift in performance, considering Houston’s volume of construction and weakened jobs market.

Seattle had only a minor increase in lease-up time of one month and a decrease in average units leased per month of only two. As mentioned previously, Seattle hasn’t seen the surge in lease-up properties that other markets have. In addition, its average property size is smaller than those of the three other markets in this comparison. Smaller properties obviously take less time to achieve stabilized occupancy of at least 90%.

Average property size (in units) decreased slightly in Seattle, Atlanta and Dallas between periods, while Houston’s property size actually increased, apartment market research found.

Overall, the obvious conclusion is that increased apartment development comes with increased competition and longer leasing periods, with fewer leases signed per property per month. Performance may differ on a project-by-project basis depending on the location, quality and physical characteristics of each property, and market participants are best served to watch closely the supply and demand trends in each market to gauge their chances of success.


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 May 2017 were: 

  • City of Los Angeles (12,022 units)
  • City of Seattle (8,367 units)
  • City of Chicago (8,209 units)
  • City of Denver (7,736 units)
  • City of Austin (6,691 units)
  • Borough of Brooklyn (6,187 units)
  • City of Atlanta (6,113 units)
  • City of Dallas (5,721 units)
  • Borough of Manhattan (5,690 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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