Single-family construction starts dwindle as homebuilders drown in inventory. But multifamily construction is at a 36-year high

Housing construction is divided into two parts.

By wolf richter For wolf street,

Construction of single family homes begins The whole year is falling as homebuilders try to offload a huge pile of inventory, while sales have plunged and foot traffic to look at new properties has plummeted. In October, single-family construction starts decreased further.

Construction of multi-dimensional projects started – Condo and apartment buildings – continue at the highest level since the multifamily boom in the 1980s.

United, construction begins According to the Census Bureau, privately owned housing units of all types declined 4.2% in September to October, and declined 8.8% year-on-year against a seasonally adjusted annual rate (SAAR) of 1.42 million housing units. Is.

During the period 2000 to 2020, the number of households increased by an average of 1.17 million per year, topping a decline in 2020 (purple line). It also sheds some light on the so-called “housing shortage” and “underbuilding”. But this equation does not take into account housing units that are being used for non-housing purposes, such as vacant properties that are put off the market by their owners to ride out the price-spike; and as such housing units are being used as short-term vacation rentals.

decline in nuclear family formation,

Single-family home construction fell by a seasonally adjusted annual rate of 855,000 homes in September to October, down 6.1% and 21% from a year earlier. Since the free-money-fuel peak in December 2020, construction of single-family homes has fallen by 35%.

But even the peak remains well below the Housing Bubble 1 peak in 2005, which is infamous for the rampant construction and subsequent collapse of the industry.

Inventories of homes in various stages of construction swelled and in September, at 462,000 properties, reached the highest level since early 2008, according to separate Census Bureau data released last month. Mortgage rates have returned to normal-ish levels before QE, but house prices have not, and it is a toxic mix, and it has killed demand.

multidimensional construction boom,

Construction starts of multifamily buildings of five or more units, such as condos and apartment buildings, dipped just a tiny bit in September to October, but rose 17.3% from a year earlier, to a seasonally-adjusted annual rate of 556,000 units.

In many densely populated cities and urban cores, multifamily is the only type of housing being built in San Francisco, Boston, Manhattan, etc., while single-family construction occurs further away from the urban core.

These initial estimates of multifamily construction starts are volatile from month to month. To show the longer-term trend, I transformed the monthly data into a three-month moving average (3MMA), which reached its highest level since 1986.

The current rate of construction starts in the middle of the range in 2000-2008 is over 50%; And that’s up almost 40% from the mid-2015 to 2019 range:

Over a four-decade horizon, we can see an uptick and decline in the construction of single-family homes (red line in the chart below) and multifamily units (green line in the chart below). In the 1980s, there was a huge boom in construction overall. Construction of multifamily units tripled during this period, followed by a protracted decline afterward, while single-family construction continued to ramp up, eventually hitting a top in 2005.

Lead times are very long for multifamily projects and are measured in years for large towers. Once a project starts, it will usually keep rolling. But home builders can cut back on their construction plans pretty quickly. And that’s showing up in the charts, too: The decline in single-family construction began in early 2006, during the housing bust 1. And everything stopped:

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