Wednesday, February 16, 2011

Multi-family Housing Starts and Completions

by Bill McBride on 2/16/2011 12:11:00 PM

The Housing Starts report this morning showed an increase in multi-family starts in January. Although the number of multi-family starts can vary significantly month to month, some increase this year is expected since it takes over a year on a average to complete a multi-family unit. Apartment owners are seeing falling vacancy rates, and some have started to plan for 2012 and will be breaking ground this year. We can see this in reports from architects and from comments at the NMHC apartment conference:

The expectations are for a record low supply completed this year (2011). Some pickup in completions next year (2012), and then plenty of completions in 2013. ... The pickup in starts will help both GDP and employment growth this year.
The following graph shows the lag between multi-family starts and completions.

Multifamily Starts and completions Click on graph for larger image in graph gallery.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

For 2011, we should expect multi-family completions to be at or near a record low, and an increase in multi-family starts.

Also today, the Census Bureau released the "Quarterly Starts and Completions by Purpose and Design" report for Q4 2010. Although this data is Not Seasonally Adjusted (NSA), it shows the trends for several key housing categories.

Housing Starts This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

There was a seasonal decline in all categories, but the only category up year-over-year from Q4 2009 was 'units built for rent'. With the rental vacancy rate falling - and no more ill-conceived home buyer tax credits on the horizon - rental unit construction will increase in 2011.

The largest category - starts of single family units, built for sale - was down compared to Q4 2009 (when there was a small tax credit boost), and up slightly compared to Q4 2008. Basically single family starts are moving sideways, and will remain weak until more of the excess vacant housing units are absorbed.