June Housing Starts: Record Number of Multi-Family Housing Units Under Construction

Housing Starts Decreased to 1.434 million Annual Rate in June

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately‐owned housing starts in June were at a seasonally adjusted annual rate of 1,434,000. This is 8.0 percent below the revised May estimate of 1,559,000 and is 8.1 percent below the June 2022 rate of 1,561,000. Single‐family housing starts in June were at a rate of 935,000; this is 7.0 percent below the revised May figure of 1,005,000. The June rate for units in buildings with five units or more was 482,000

Building Permits:
Privately‐owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,440,000. This is 3.7 percent below the revised May rate of 1,496,000 and is 15.3 percent below the June 2022 rate of 1,701,000. Single‐family authorizations in June were at a rate of 922,000; this is 2.2 percent above the revised May figure of 902,000. Authorizations of units in buildings with five units or more were at a rate of 467,000 in June.
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The first graph shows single and multi-family housing starts since 2000 (including the housing bubble).

Multi-family starts (blue, 2+ units) decreased in June compared to May. Multi-family starts were down 9.4% year-over-year in June. Single-family starts (red) decreased in June and were down 7.4% year-over-year.

Note that the weakness over the last year had been in single family starts (red), however it appears weakness is moving to multi-family now while single family has bounced back somewhat from the bottom.

The second graph shows single and multi-family starts since 1968. This shows the huge collapse following the housing bubble, and then the eventual recovery - and the recent collapse in single-family starts.

Total housing starts in June were below expectations, and starts in April and May were revised down, combined.

The third graph shows the month-to-month comparison for total starts between 2022 (blue) and 2023 (red).

Total starts were down 8.0% in June compared to June 2022.  And starts year-to-date are down 15.0% compared to last year.

Starts have been down year-over-year for 13 of the last 14 months (May 2023 was the exception), and I expect total starts to be down this year - although the year-over-year comparisons will be easier the rest of the year.

Record Number of Multi-Family Housing Units Under Construction

The fourth graph shows housing starts under construction, Seasonally Adjusted (SA).

Red are single-family units. Currently, there are 688 thousand single-family units (red) under construction (SA). This was down in June compared to May and 143 thousand below the recent peak in May 2022. Single-family units under construction peaked over a year ago since single-family starts declined sharply.

Blue is for 2+ units. Currently, there are 994 thousand multi-family units under construction.  This ties the record set in July 1973 of multi-family units being built for the baby boom generation. For multi-family, construction delays are a significant factor. The completion of these units should help with rent pressure.

Combined, there are 1.682 million units under construction, just 28 thousand below the all-time record of 1.710 million set in October 2022.

Comparing Starts and Completions

Below is a graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that new supply is added to the market and starts are important because that is future new supply (units under construction are also important for employment).

These graphs use a 12-month rolling total for NSA starts and completions.

The blue line is for multifamily starts, and the red line is for multifamily completions. Multifamily starts will likely decline, and completions increase for the remainder of 2023.

The last graph shows single-family starts and completions. It usually only takes about 6 months between starting a single-family home and completion - so the lines are much closer than for multi-family. The blue line is for single-family starts, and the red line is for single-family completions.

Builders are now completing more single-family homes than they are starting on a 12-month basis. Completions are beginning to follow start down.

Conclusions

Total housing starts in June were below expectations and starts in April, and May were revised down combined. The weakness over the previous 12 months was in single-family starts. However, single-family starts have now picked up somewhat (although down in June) since there is limited existing home inventory.

It appears the expected downturn in multi-family starts has begun, and we should see further weakness in the sector based on falling asking rents, rising vacancies, and tighter lending. We can already see this in the National Multifamily Housing Council’s (NMHC’s) Quarterly Survey of Apartment Market Conditions and in the Architectural Billings Index.

A record number of multi-family housing units are under construction due to construction delays, but the number of single-family housing units under construction is now declining. This suggests a large number of multi-family housing units will be delivered later this year and in 2024.