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Market Reporting that Matters

October 2017 Construction Report

Construction Permits and Starts Rebound

Wednesday, December 6, 2017


Annual total residential construction starts and building permits returned to their growth trends in October compared to September, according to the latest U.S. Census figures. Rebuilding efforts and delayed construction after Hurricanes Harvey and Irma caused both single-family and multifamily construction starts to rebound sharply in the South, bringing total starts figures up by double digits nationally.

Single-family permitting and starts resumed their healthy pace on a year-over-year basis, as the housing market’s gradual improvement remained on track.

 


IN THIS ISSUE:

Little Change in Top Permitting Places

The ‘Other’ Multifamily Market Revisited

By the Numbers

  • The 1.297 million total residential housing units permitted during the 12 months ending in October were, on a seasonally adjusted annual rate (SAAR), up 5.9% from September and 0.9% from October 2016.
    • The 416,000 multifamily units permitted in the 12 months ending in October was 13.4% more than September’s annual total – but 12.2% lower than the October 2016 annual rate. Multifamily permits returned above 400,000 units for the fifth time in the past 12 months.
    • The annual rate of single-family permits grew 1.9% from that of September at 839,000, and was 7.7% higher than the October 2016 rate. Single-family permitting has exceeded the 800,000-unit level in nine of the past 12 months.
  • Total residential construction starts of 1.29 million units in the 12 months ending in October were 13.7% greater than September but 2.9% less than October 2016. The annual rate of total starts was higher than most economists’ expectations, with the volatile multifamily sector up sharply from the previous month.
    • Annual single-family starts of 877,000 homes were 5.3% greater than September’s annual rate but only 0.7% more than October 2016’s. Single-family starts have surpassed 820,000 homes in nine of the past 12 months.
    • Multifamily construction starts of 393,000 units were the largest annual rate since January. That rate was 37.4% higher than September, but 12.1% less than October 2016. Annual multifamily starts have averaged 352,000 for the year.
  • Total residential completions surged to 1.232 million units and were 12.6% higher than in September and 15.5% higher than October 2016.
    • Single-family completions were up by 2.6% on an SAAR basis from September, and were 5.0% higher than the October 2016 annual figure.
    • Multifamily completions jumped 37.9% compared to September, and were 42.0% greater than October 2016.


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

  • Total annual starts in October 2017 were up in the Midwest (7.1%), but down in the Northeast (-10.5%), West (-9.3%), and South (-0.5%), despite strong gains from last month.
  • Annual single-family starts were up the most in the small Midwest region (10.4%) and also increased in the South (3.0%). Single-family starts were down for the year in the Northeast (-13.2%), and West (-5.6%).
  • Multifamily construction starts declined by double digits in three regions: West (-17.8%), South (-12.3%) and Northeast (-11.5%), and were down by 2.1% in the Midwest.
  • Annual total permits increased in the Northeast (8.6%) and West (4.3%), but declined in the Midwest (-5.0%), and South (-0.5%).
  • The annual rate of single-family permits increased in three regions: West (15.0%), South (8.3%) and Midwest (3.5%), while the Northeast decreased by 11.9%.
  • Annual multifamily permits fell in all but the Northeast region (up 29.6%), with steep declines in the South (-21.5%), Midwest (-20.4%) and West (-9.9%).
  • Single-family completions were up sharply in the Northeast (26.5%), and were higher in the West (10.5%), and Midwest (9.2%), but down slightly in the South (-0.7%). Multifamily completions trebled (on an SAAR basis) in Northeast region (218.4%) and almost doubled in the South (92.9%). The West saw a moderate increase in multifamily completions (11.9%), while the small Midwest region declined by 82.9%. 

 

Little Change in Top Permitting Places

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


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The first nine of the top 10 metros remained the same as they did in the previous four months, and the first five remained in order. Austin moved up two spots to No. 6 and Washington, DC vaulted from No. 9 to No. 7, pushing Chicago and Atlanta down two spots each to Nos. 8 and 9, respectively. Phoenix regained the No. 10 spot it gave up to Portland last month. Portland, Miami, Boston, and Minneapolis-St. Paul returned in the top 14, though in slightly different orders, while Nashville continued to move up the list to No. 15 from No. 18 in September. Charlotte, Orlando, Fort Worth, and Oakland round out the top 20 as they did last month.

Four of the top 10 metros issued fewer multifamily permits in the 12 months ending in October 2017 than they did in the preceding 12 months, with Atlanta experiencing the only double-digit percentage decline. Dallas, Denver and Phoenix each saw an increase in multifamily permits for the year ending in October of more than 10%, while New York, Seattle and Austin each jumped more than 4%.

Despite moving up in the rankings, Nashville issued permits for 1,223 fewer multifamily units than last year, with significant slowing in Houston (-6,126), Atlanta (-3,584), West Palm Beach (-2,996) and San Diego (-2,542). Other metros with more than 1,300 fewer units permitted included Los Angeles, Newark, Oklahoma City, North-Port-Sarasota-Bradenton, FL, and Orlando.

Multifamily permitting is rising in Dallas (+2,791), Minneapolis-St. Paul (+1,925), San Jose (+1,894) and Portland (+1,867). Sacramento, Denver, New York, Riverside, Jacksonville and Tacoma also had multifamily-permit gains of at least 1,100 units 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 – 142,838 – was 1.4% greater than the 140,828 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 almost equaled the 11th-38th ranked markets.

Access the latest permit trends tables in Excel format here.

Please contact us if you have any questions at info@axiometrics.com.

 

The 'Other' Multifamily Market Revisited

Not long ago, we looked at the plight of the plex at the national level. The result of our research found that 2-4 unit permits as a share of total residential permits has been on a downward trend since at least the 1960s. Multifamily (5+ unit) permits as a share of total also has been trending downward, but at a more gradual rate – at least until the current post-recession cycle.

Although they comprise a small portion of total residential construction, multi-unit “plex” properties compete to some degree with apartments, for-lease single-family and rental condominiums or townhomes. In fact, according to data from the Census Bureau’s American Community Survey (ACS), more than 83% of existing occupied 2-4 unit structures are rentals.

How are duplexes, triplexes, and fourplexes faring at the metro level? The following chart graphs the ratio of 2-4 unit to total residential permits for the current top five metro areas for multifamily permitting (5+ unit) from 1988 to October 2017.


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As seen in the chart, Dallas-Fort Worth and Denver have had relatively stable ratios of plexes to total permits over the past 30 years, averaging 1.0% and 2.0%, respectively. Seattle-Tacoma and Los Angeles-Anaheim have had a few ups and downs in their plex ratios, but have not strayed too far from their long-term averages of 5.9% and 5.6%, respectively. New York-Newark has experienced the most variation in its ratio of plexes to total residential permits over the years, ranging from 2.7% to more than 26%.

During the housing bubble and the years leading up to it, New York more than quadrupled the number of plex properties permitted, while single-family permitting merely doubled at the same time. New York’s plex ratio has dropped to about 6% after 2010 as the proportion of 5+ multifamily permits has risen from about 32% pre-recession to more than 70% today. A large part of the recent run-up in New York’s multifamily permits is due to the 421-a tax credit situation.

The table below shows that all of these top multifamily permitting metros are building a smaller proportion of their residential units as plexes when compared to their existing base of 2- to 4-unit properties. That is not surprising with the aforementioned decline in plex construction historically. In addition, many communities converted some single-family properties into multifamily during and after World War II due to acute housing shortages, increasing the number of 2- to 4-unit properties without a new “plex” building permit.


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The ACS data also revealed that New York has a lower proportion of plex rentals than the remaining top five metros, but with the higher housing density in that market, that also is not surprising. Dallas, Los Angeles and Seattle are each above the national average of 83%, but Denver is well below it. Interestingly, New York also has a higher household size for owner-occupied plexes than for rentals, while the other metros have an average plex renter household size of about 2.6 people, compared to 2.0 for owner-occupied plexes.

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 October 2017 were:

  • City of Los Angeles (11,465 units)
  • City of Seattle (8,058 units)
  • City of Denver (7,975 units)
  • City of Chicago (7,241 units)
  • City of Austin (7,196 units)
  • Borough of Brooklyn (5,942 units)
  • City of Portland (5,597 units)
  • Mecklenburg County (5,398 units)
  • City of Miami (5,133 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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