Slowdown ahead for multifamily housing construction?

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The Census Bureau released its monthly new residential construction report for October 2020. It shows continuing weakness for multifamily housing construction permits and starts but a high pace for completions of multifamily housing units.

Multifamily housing construction permits fall

The number of permits issued for buildings with 5 or more units fell in October to 365,000 units on a seasonally adjusted, annualized basis. This was down 6 percent from the September figure, which was itself revised downward by 2,000 units. October permits were down 31 percent from the year-earlier level and were 16 percent below the average level for the prior 12 months. It should be noted that there was a surge in the number of permits issued at the end of 2019 and so the annual comparisons are likely to look weak over the next few months.

In addition, 60,000 permits were issued in October for units in buildings with 2 to 4 units, an exceptionally high figure. This was up 36 percent from the level of the previous month and was 25 percent higher than the number of such permits issued in October 2019.

Regional data for multifamily housing is only reported for structures with two or more units. “Structures with 5 or more units” is not broken out as a separate category. Since the regional data is highly volatile and is frequently revised, it is examined here based on three-month moving averages.

Nationally, the three-month moving average for permits issued for multifamily housing in October was down 6 percent from the September level and was down 20 percent from the level of October 2019. This is shown in the first chart, below. The three-month moving average came it at 432,000 units, 11 percent below the trailing 12 month average.

On a month over month basis, the three-month moving average for permit issuance was down in all regions of the country. Permits fell 2 percent in the Northeast, 3 percent in the South, 10 percent in the West and 11 percent in the Midwest.

Compared to year-earlier levels, the three-month moving average of permits issued was down 2 percent in the Midwest, 17 percent in the Northeast, 22 percent in the West and 23 percent in the South.

The following chart shows the three-month moving averages of permits by region for the last 25 months.

multifamily housing construction permits

Multifamily housing construction starts drop – sort of

Again this month, the report of starts in buildings with 5 or more units included significant adjustments to the figures reported for prior months. The August figure was revised downward by another 16,000 units bringing the total of adjustments to the figure originally reported to -45,000 units. However, the September figure for multifamily housing construction starts was revised upward by 50,000 units from the preliminary figure reported last month. While the Census Bureau reported that starts fell 3 percent in October from their September level, starts were down only because of the upward revision to the September figure. The preliminary figure for multifamily housing construction starts in buildings with 5 or more units in October was 334,000 units on a seasonally adjusted, annualized basis. This was down 20 percent from the level for October 2019.

Multifamily housing construction starts (two or more units per building) in October were down 12 percent from their September levels for the country as-a-whole, based on three-month moving averages. Starts were up 0.4 percent in the West but were down 4 percent in the Midwest, 18 percent in the South and 25 percent in the Northeast from their levels in September.

The three-month moving average of starts was down 16 percent for the country-as-a-whole on a year-over-year basis. Compared to October 2019, starts were up 43 percent in the Midwest but down 14 percent in the West, 19 percent in the South and 53 percent in the Northeast.

The following chart shows the starts by region for the last 25 months.

 

multifamily housing construction starts

Multifamily housing completions ease

The October report states that completions in buildings with 5 or more units per building fell 7 percent from September’s blistering pace, to a still-strong figure of 444,000 units on a seasonally adjusted, annualized basis. Compared to October 2019, multifamily housing construction completions in buildings with 5 or more units per building were up 28 percent. Compared to the trailing 12 month average level, completions were up 27 percent.

For the country as-a-whole, multifamily housing construction completions (two or more units per building) were up 6 percent month-over-month, comparing three-month moving averages. By region, the three-month moving averages of completions were up 22 percent in the Midwest, 5 percent in the South and 3 percent in the Northeast. Completions fell 1 percent in the West.

On a year-over-year basis, the three-month moving average of completions in buildings with 2 or more units per building was up 33 percent nationally. Completions were up by 75 percent in the South, 59 percent in the Midwest and 6 percent in the West. Completions fell by 22 percent in Northeast. The South region had 47 percent of the country’s completions.

Completions by region for the past 25 months are shown in the chart below.

multifamily housing construction completions

All data quoted are based on seasonally adjusted results and are subject to revision.