Thursday, June 16, 2011

Residential Investment: Mutli-family Starts and Completions

by Bill McBride on 6/16/2011 12:11:00 PM

Also from the Housing Starts report this morning ...

Although the number of multi-family starts can vary significantly from month to month, apartment owners are seeing falling vacancy rates, and some have started to plan for 2012 and 2013 and will be breaking ground this year. So I've been forecasting a pickup in multi-family starts this year.

However, since it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - there will be a record low, or near record low, number of multi-family completions this year.

The following graph shows the lag between multi-family starts and completions using a 12 month rolling average.

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.

The rolling 12 month total for starts (blue line) is now at the same level as the rolling 12 month for completions (red line), but they are heading in opposite directions. Starts are picking up and completions are declining.

It is important to note that even if there is a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). The following table shows RI in Q1 2011:

Residential Investment, Q1 2011
 Dollars (millions) SAARPercent of RI
Single-family structures$106,73632.9%
Improvements$151,62246.8%
Multifamily structures$12,7343.9%
Brokers' commissions on sale of structures$52,15216.1%
Other$8880.3%


Usually investment in single-family structures is over half of RI, but obviously single-family is very depressed right now. A strong pickup in multi-family might only add a couple of percent to residential investment, but it also appears that home improvement is picking up a little. And some increase for both multi-family and home improvement is why I expect RI to make a positive contribution to both GDP and employment (residential construction) in 2011 for the first time since 2005.

Anecdotal evidence: I visited the local planning department yesterday, and I was told that permit activity has picked up over the last couple of months. I went upstairs to chat, and when I came back down the lobby was full - something they haven't seen for some time.

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