For only the second year since the Great Recession, multifamily unit completions declined in 2018, according to NAHB analysis of the latest annual multifamily data from the Survey of Construction (SOC).

As is typical, the number of multifamily units completed for rent exceeds the number of units completed for sale (92% rental share). In 2018, the number of units completed for-rent summed to 318,000 and multifamily for-sale units equaled 27,000, totaling 345,000 units completed. This marks a decline of 13,000 units from 2017. The net decline is attributed to a reduction in the number of units completed for rent, only partially offset by an increase of 5,000 units for sale.

While the market shares of units in buildings with 9 or fewer units, 10-29 units, and 30-49 units declined in recent years, the number of units completed in these categories posted absolute declines as well in 2018 compared to 2017.

At the regional level, the SOC data indicate that the greatest increase in the number of multifamily units completed for sale occurred in the Northeast, increasing by 3,000 units to 9,000 from the previous year. This marks a for-sale share of 17%, the highest in the nation.

In the rental market, the South posted the greatest decline in the number of multifamily units completed, decreasing by 15,000 units to 137,000. Interestingly, the West posted an increase in the number of multifamily units completed for rent, expanding by 9,000 units to 93,000 in 2018, a sign of ongoing housing affordability constraints particularly in the single-family for-sale sector.

As seen from the above figure, the Northeast and South experienced the greatest increases in shares of buildings with 50 units or more, while the composition in the Midwest and West was relatively static. The fourth quarter of 2018 also saw an tightening of bank lending standards and decrease in demand for commercial real estate loans for multifamily units, according to reported responses of a prior Senior Loan Officer Opinion Survey.

Year-over-year (YoY), total nonfarm employment increased by 2.1 million jobs on a seasonally adjusted basis (SA), or 1.4% from October 2018 to October 2019. During this time, total nonfarm employment in the Western region increased by 1.9%. The South, Northeast, and Midwest recorded gains at 1.7%, 0.9% and 0.6% respectively, during this time.

According to the Bureau of Labor Statistics, nonfarm payroll employment increased in 30 states and the District of Columbia and decreased in 18 states, in October compared to the previous month. Iowa and Vermont were unchanged. Texas added 12,897 jobs, which was the largest gain of any state. The largest decline came from Michigan, which lost 21,800 jobs during this time. Nationwide, total nonfarm payroll employment increased by 128,000 over the month of October, following an increase of 180,000 jobs in September.

Year-over-year, ending in October, 48 states and the District of Columbia increased in employment. North Dakota and Michigan were essentially unchanged. California added 308,000 workers while the smallest gain came from Wyoming which added 700 workers during this time. In percentage terms, 21 states recorded annualized growth rates equal to and/or above 1.4% in employment, which was the national growth rate. Utah recorded the highest growth rate at 3.2%. The other states and the District of Columbia recorded annualized growth rates between 0.2%-1.3%.

In the construction sector specifically, which includes both residential and non-residential construction, across the 48 states which reported construction sector jobs data, 28 states had an increase in October, while 18 states reported a decline compared to September. Maine and Missouri were unchanged. The construction industry gained 10,000 jobs in October. Florida added 4,600 jobs, the highest gains in construction employees while New York lost 3,000 workers during this time.

Year-over-year, the U.S added 148,000 construction sector jobs which is a 2.0% increase compared to October 2018. Texas added 51,400 jobs, which was the largest gains of any state while Louisiana lost 9,700 jobs, which was the largest decline of any state. In percentage terms, Nevada had the highest annual growth rate in construction sector by 13.1%. Over this period, Louisiana reported the largest decline at 6.4%.

The number of single-family homes built-for-rent posted a small decline during third quarter of 2019. This market has received recent attention as a means to add single-family inventory amid concerns over housing affordability and downpayment requirements in the for-sale market. Single-family built-for-rent (SFBFR) construction does differ in structure characteristics compared other single-family homes.

According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were 11,000 single-family built-for-rent starts for the third quarter of 2019. This is lower than the 14,000 estimated for the third quarter of 2018 however. Over the last four quarters, 41,000 such homes began construction, which is lower than the 45,000 estimated SFBFR starts for the four quarter prior to that period.

Given the small size of this market segment, the quarter-to-quarter movements typically are not statistically significant. The current four-quarter moving average of market share (4.5%) remains higher than the recent historical average of 2.7% (1992-2012) but is down from the 5.8% reading registered at the start of 2013. As measured for this analysis, this class of single-family construction excludes homes that are sold to another party for rental purposes, which NAHB estimates may represent another two percent of single-family starts. The estimates in this post only include homes built and held for rental purposes.

With the onset of the Great Recession and declines in the homeownership rate, the share of built-for-rent homes increased. Despite the current elevated market concentration, the total number of single-family starts built-for-rent remains small in terms of the total size of the building market.

The built-for-rent pipeline of single-family homes is considerably smaller than the single-family home portion of the rental housing stock, which is 35% according to the 2017 American Community Survey. Approximately five million single-family homes were added to the rental stock since the Great Recession due to tenure switching. As homes age, they are more likely to be rented and the vast majority of these rental homes are owned by individual households. Thus, the primary source of single-family rental homes is not construction but the existing housing stock. In fact, from 2005 to 2015, 56% of the gains in the rental housing stock were due to increases of for-rent single-family homes.

According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, townhouse construction may be nearing the end of its recent slowdown, showing relatively flat construction conditions for the third quarter.

This recent market softness matches data in the NAHB HBGI, which displayed weak construction activity for large metro suburban markets at the start of 2019. Nonetheless, townhouse construction is set for further expansion given the demographics of renters entering the for-sale market, as well as ongoing land constraints and the growth of demand for walkable neighborhoods.

Over the last four quarter (ending with the third quarter of 2019), townhouse construction starts totaled 111,000, 10% lower than the prior four quarters. However, townhouses, or single-family attached housing, accounted for 32,000 starts during the third quarter of 2019. This was only slightly lower than the 33,000 total for the third quarter of 2018, indicating some recent momentum. Using a one-year moving average, the market share of new townhouses stands at 12.9% of all single-family starts, off recent post-recession highs.

The peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when the percentage reached 14.6% of total single-family construction. This high point was set after a fairly consistent increase in the share beginning in the early 1990s.

The market share for townhouse construction is expected to increase in coming years – with occasional ups and downs. The long-run prospects for townhouse construction are positive given large numbers of homebuyers looking for medium density residential neighborhoods, such as urban villages that offer walkable environments and other amenities.

According to estimates from the U.S. Housing and Urban Development and Commerce Department, single-family starts increased in October, consistent with solid levels for the NAHB/Wells Fargo Housing Market Index (HMI). Thanks to lower mortgage interest rates, the seasonally adjusted annual pace of single-family permits has been rising since April, the rate of single-family starts has been increasing since May, and the 3-month moving average for single-family construction is at a post-recession high.

Single-family starts increased 2% to a 936,000 seasonally adjusted annual pace in October. Multifamily starts increased 8.6% to a 378,000 annualized rate after a strong reading of 466,000 in August and a smaller 348,000 pace in September.

On a year-to-date basis, single-family starts are just 1.3% lower than the first ten months of 2018. NAHB’s forecast, and the forward-looking HMI suggest that future data will show modest monthly gains due to lower mortgage interest rates. Indeed, single-family permits have been increasing since April, and single-family starts have been rising since May as the home construction rebound continues. We expect additional single-family growth, as areas beyond the exurbs respond to for-sale housing demand and healthy labor markets.

On a regional and year-to-date basis, single-family starts are down 14% in the Northeast, 8% in the West, 6% in the Midwest and up 5% in the South – the only region with net gains. Land availability and cost is a key factor explaining these regional differences.

As of October 2019, there were 527,000 single-family homes under construction. September saw the first gain for this number since January, and the current count is roughly flat from a year ago. There are currently 634,000 apartments under construction, a post-Great Recession high. The cumulative economic impact of the 2019 rebound in home construction is seen in the graph below.