The Census Bureau released its monthly new residential construction report for July 2019. The report was mixed with some strength in the number of building permits issued but with weakness in multifamily housing construction starts and completions.
Permits rebound
The preliminary report for July shows that permits for buildings with 5 or more units were up by 25 percent from June’s level, to 453,000 units on a seasonally adjusted, annualized basis. This is in line with the levels seen since last November and makes June’s reading of only 363,000 permits issued seem like an anomaly. Compared to the year-earlier level, permits for buildings with 5 or more units were also up, rising 9.2 percent.
In addition, 45,000 permits were issued in July for buildings with 2 to 4 units, down only slightly from June’s level and near a recent high. Note that both the City of Minneapolis and the State of Oregon have recently passed laws allowing buildings in this size range to be built as in-fill units in regions formerly zoned for only single-family dwellings. It will be interesting to see if these laws cause an increase in the construction of these units.
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 July was nearly unchanged from June’s level, falling less than 1 percent. However, it was up 8 percent from the level of July 2018. This is shown in the first chart, below.
On a month over month basis, the Northeast and Midwest, which are the regions with relatively low levels of housing construction, saw declines in permitting activity of between 5 and 8 percent. On the other hand, the South and the West, which together represent nearly 75 percent of permits issued, saw slight rises in permitting activity during the month. The net result was an effectively unchanged level of permitting activity for the country as-a-whole.
Compared to year-earlier levels, the number of units permitted declined in the Midwest and Northeast but rose modestly in the South and strongly in the West, leading to a net gain in permits.
Multifamily housing construction starts sag
The July level of multifamily housing construction starts for buildings with 5 or more units was down by 17.2 percent for the month, following a similar decline in June. The 303,000 starts reported for July, on a seasonally-adjusted, annualized basis, is the lowest reading for this metric since August 2017.
Compared to year-earlier levels, construction starts for buildings with 5 or more units were also down, falling almost 5 percent from the July 2018 level.
Multifamily housing construction starts (two or more units per building) were down 7.5 percent from their June levels for the country as-a-whole, based on three-month moving averages. Only the Midwest saw a modest rise in starts. The biggest fall in starts on a percentage basis was seen in the Northeast, where they fell 19 percent. The biggest fall in the number of units started occurred in the South where starts fell by 20,000 units from the June level. However, as the chart makes clear, the decline in starts comes after a recent surge and the current level of starts is in line with recent levels, at least when viewed based on 3 month moving averages.
On a year-over-year basis, starts were up 10 percent for the country-as-a-whole. Starts surged in the Northeast by 28 percent compared to year-earlier levels. Starts were also up modestly in all other regions of the country.
The following chart shows the starts by region for the last 24 months.
Completions bounce back
Nationally, completions of buildings with 5 or more units rose 17 percent in July from the month-earlier level. This comparison was helped by the fact that the June level of completions was revised downward to only 278,000 units on a seasonally-adjusted, annualized basis. The June figure was the lowest number of completions in over two years. However, completions of building with 5 or more units in July were down compared to the year-earlier level, falling 9 percent.
For the country as-a-whole, multifamily housing completions for (two or more units per building) were down 7 percent month-over-month, comparing three-month moving averages. While this is partly explained by the fact that completions are coming off of the spring surge which followed last-year’s autumn decline, the three-month moving average of completions is now also 10 percent below the average rate of the last two years. The Midwest was the only region of the country to see a rise in completions in July, but with a gain of only 1.2 percent. All other regions of the country saw declines in completions, with the Northeast seeing a 26 percent drop.
On a year-over-year basis, the three-month moving average of completions was down by 3.9 percent. By region, the story was mixed with completions falling in the Northeast and South but rising in the Midwest and West.
Completions by region for the past 24 months are shown in the chart below.
All multifamily housing construction data quoted are based on seasonally adjusted results and are subject to revision.
