July Housing Starts: Record Number of Multi-Family Housing Units Under Construction

Housing Starts Increased to 1.452 million Annual Rate in July

Housing Starts Increased to 1.452 million Annual Rate in July

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately‐owned housing starts in July were at a seasonally adjusted annual rate of 1,452,000. This is 3.9 percent above the revised June estimate of 1,398,000 and is 5.9 percent above the July 2022 rate of 1,371,000. Single‐family housing starts in July were at a rate of 983,000; this is 6.7 percent above the revised June figure of 921,000. The July rate for units in buildings with five units or more was 460,000.

Building Permits:
Privately‐owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 1,442,000. This is 0.1 percent above the revised June rate of 1,441,000, but is 13.0 percent below the July 2022 rate of 1,658,000. Single‐family authorizations in July were at a rate of 930,000; this is 0.6 percent above the revised June figure of 924,000. Authorizations of units in buildings with five units or more were at a rate of 464,000 in July.
emphasis added

The first graph shows single and multi-family housing starts since 2000 (including housing bubble).

Multi-family starts (blue, 2+ units) decreased in July compared to June. Multi-family starts were down 0.8% year-over-year in July. Single-family starts (red) increased in July and were up 9.5% year-over-year.

Note that the weakness in 2022 and early 2023 had been in single family starts (red), however it appears weakness is moving to multi-family now while single family has bounced back somewhat from the bottom.

The second graph shows single and multi-family starts since 1968. This shows the huge collapse following the housing bubble, and then the eventual recovery - and the recent collapse in single-family starts.

Total housing starts in July were close to expectations, however, starts in May and June were revised down, combined.

The third graph shows the month-to-month comparison for total starts between 2022 (blue) and 2023 (red).

Total starts were up 5.9% in July compared to July 2022.  And starts year-to-date are down 12.4% compared to last year.

Starts have been down year-over-year for 13 of the last 15 months (May and July 2023 were the exceptions), and I expect total starts to be down this year - although the year-over-year comparisons will be easier the rest of the year.

Record Number of Multi-Family Housing Units Under Construction

The fourth graph shows housing starts under construction, Seasonally Adjusted (SA).

Red is single family units. Currently there are 678 thousand single family units (red) under construction (SA). This was down in July compared to June, and 153 thousand below the recent peak in May 2022. Single family units under construction peaked over a year ago since single family starts declined sharply.

Blue is for 2+ units. Currently there are 1,003 thousand multi-family units under construction.  This breaks the record set in July 1973 of multi-family units being built for the baby-boom generation. For multi-family, construction delays are a significant factor. The completion of these units should help with rent pressure.

Combined, there are 1.681 million units under construction, just 29 thousand below the all-time record of 1.710 million set in October 2022.

Comparing Starts and Completions

Below is a graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12-month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions. Multifamily starts will likely decline, and completions increase over the next year.

The last graph shows single family starts and completions. It usually only takes about 6 months between starting a single-family home and completion - so the lines are much closer than for multi-family. The blue line is for single family starts and the red line is for single family completions.

Builders are now completing more single-family homes than they are starting on a 12-month basis. Completions are beginning to follow starts down.

Conclusions

Total housing starts in July were close to expectations, however, starts in May and June were revised down, combined. The weakness in 2022 and early 2023 was in single family starts. However, single family starts have now picked up a little, helped by limited existing home inventory.

It appears the expected downturn in multi-family starts has begun, and we should see further weakness in the sector based on falling asking rents, rising vacancies, and tighter lending. We can already see this in the National Multifamily Housing Council’s (NMHC’s) Quarterly Survey of Apartment Market Conditions and in the Architectural Billings Index that showed a decline in multi-family design for the 11th consecutive month in July.

A record number of multi-family housing units are under construction due to construction delays, but the number of single-family housing units under construction is now declining. This suggests a large number of multi-family housing units will be delivered later this year and in 2024.