Multifamily starts fell in July on a monthly and yearly basis, according to HUD and the U.S. Census Bureau’s latest residential construction report released Tuesday.
In July, the seasonally adjusted starts rate for buildings with five units or more was 421,000, per the report, down 7.1% year over year and 15.6% lower than June. Single-family construction dropped about twice as much as multifamily YOY, down 15.7%.
Total privately owned housing starts stood at a seasonally adjusted rate of 1.24 million units in July, 13.5% lower than a year ago and down 12.4% from June.
Fewer new apartments came online last month. Multifamily project completions were at a seasonally adjusted rate of 329,000 in July, down 14.8% from June and 25.6% lower than a year ago.
Multifamily building permits, which signal future construction activity, were at a seasonally adjusted rate of 490,000. That’s 9.1% higher than June and 6.3% higher than the same period the previous year.
On a regional basis, the Northeast saw by far the highest level of housing construction activity, with total starts up 62.4% YOY. Single-family starts were down 18.9% YOY during that period, indicating that multifamily drove most of the new construction in that area.
In the West, total starts were up 5.3% YOY last month while single-family starts were down 20.7% YOY, suggesting that in the West too, much of the new construction activity was multifamily.
By contrast, in July total housing starts were down 27% YOY in the Midwest and down 24.1% YOY in the South, with single-family building activity more robust in both regions.
What’s weighing on builders
Economic uncertainty, rising construction prices, labor shortages and elevated financing costs challenged home builders in July, according to the National Association of Home Builders.
“Higher mortgage rates are keeping many prospective buyers on the sidelines, while rising material, gas and diesel costs are adding to the cost of construction. These challenges are making it increasingly difficult for builders to deliver homes at prices that buyers can afford,” Bill Owens, chairman of NAHB and a home builder and remodeler from Worthington, Ohio, said in a Tuesday release.
Construction input prices were up 7.4% in July from the previous year, according to an analysis of the latest U.S. Bureau of Labor Statistics data by Associated Builders and Contractors released Aug. 13. Lower energy costs — particularly crude petroleum and unprocessed energy materials — helped subdue the overall monthly increase last month, Construction Dive reported. However, oil prices are rebounding, while prices for certain key materials like lumber, iron and steel continue to increase, portending higher construction costs in coming months.
Amid the difficult affordability landscape, rental housing remains a durable source of demand for homebuilders, particularly in markets with strong economies and persisting job growth, according to National Apartment Association Vice President of Research George Ratiu.
“Year-to-date construction figures show that the multifamily pipeline remains active, even as financing and affordability pressures weigh on the broader market,” Ratiu said in emailed comments. “As the 21st Century ROAD to Housing Act moves toward implementation over the next year, it could help bring more affordable homes online across both multifamily communities and single-family build-to-rent neighborhoods.”
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