Single-family construction still dominates, but its share of residential construction falls to the lowest in decades.
By Wolf Richter for WOLF STREET.
Construction starts of single-family houses and multifamily buildings is going through an overall slowdown from a big surge, split two ways:
- A clear slowdown in single-family starts
- A flattening out of multifamily starts at the highest levels since 1986.
Total residential construction starts in April (black line) jumped to 127,100 housing units, not seasonally adjusted, the fourth month in a row of gains, which is typical for the season. But year-over-year, they were down 22.6%, in part due to the “base effect”: Housing starts normally peak in the summer, but last year they spiked in April (the “base” for this calculation) to levels not seen since June 2006.
The 12-month moving average (red) shows the longer-term trends and the downturn that started after the April spike last year: Down by 13.3% year-over-year, but up by 17.5% from April 2019.
Construction starts of single-family houses rose in April for the third month in a row, as would be expected for this season, to 78,800 houses, but that was down 28.2% from April last year – in part due to the base effect.
Compared to April 2019, single-family starts were down 3.4% (black). The 12-month average in April shows the down-turn that started after the spike in April last year (red):
Construction starts of multifamily projects, such as condo and apartment buildings, with five or more units, also jumped in April as would be expected for this season, to 47,200 units, down 11.8% from the huge April last year (53,500), which had been the highest since 1986.
Compared to April 2019, multifamily starts were up 42.6% (black line). The 12-month average shows the recent flattening-out of the surge at the highest levels since the mid-1980s.
Multifamily projects tend to be big and can have long lead times. Projects where construction started in April were in the planning stages often years earlier.
In many densely populated urban cores, multifamily is just about the only type of housing that is getting built, and for many years already, much of it has been higher end, with lots of amenities, because that’s where the money is.
In these urban areas, the bulk of single-family construction takes place further away from urban cores. The decision whether to live in a new multifamily building in an urban core or in a new house further out comes down to lifestyle choice – and both are expensive.
Single-family construction still dominates, but its share declines. Over the past 12 months through April, the share of single-family housing starts dropped to 62% of total housing starts, the lowest share since 1986!
The share of multifamily starts (buildings of 5 and more units) rose to 37%, the highest share since 1974!
The share of multifamily starts in small buildings of 2-4 units has fallen to a historic low of about 1%.
Over the long term, housing starts come and go in huge waves of booms and busts. This chart also shows why Housing Bubble 1 – with single-family starts peaking in 2005 – was such an epic creature. And it shows that the current multifamily boom is still tame compared to the boom in the early to mid-1970s (starts of single-family houses = red line; multifamily units = green).
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1) Consumers spending is down from the millions –> to the crumbs.
The regional banks need time to recover from their injuries.
2) The gov infuse trillions to the south and the rust belt to build new modern industries and infra improvements.
3) AI will disperse to the new industrial base co as a lever, an integral part of each co to compete with China. The new high tech ==> no stupid and arrogant bs.
4) The mid-west elderly moved south, or expired. A new high tech Gen-Z
take over. They work as part timers in the factories, while in school, or on
Sundays in MCD, learning discipline, adjusting to reality, making money and loving it.
Consumer spending has evenly significantly changed at all.
Our single family houses will now become rare collectors items. Their price will grow 10 fold in next 10 years. Already they doubled in last 2 years as per Zestimates on my house!
We should keep spending big as our houses are earning big.
While we can all quit our jobs, no need to do that. We can just “WFH” and push paper so that these stupid employers keep paying us.
We, the Americans, have a birthright to enjoy, while the cheap chinese labor and immigrants can do all the work.
/s
Consumer spending is as high as ever. We are still near the pinnacle peak of the biggest asset bubble/mania in the history of mankind. Asset prices have barely even budged from the peak, and speculators continue to BTFD with reckless abandon because the FED doesn’t want the party to end.
Are millennials too saddled with student loans to buy houses?
Nah — just locked in a staring contest with delusional sellers.
I meant in relation to Multifamily. Is affordability the new trend?
At least in my area, multifamily tends to be in less desirable areas. Be it city, street, etc. And more expensive to buy even if you would make money on it in the long run.
Paying for a house is much easier than buying one these days.
I think affordability is the new trend for SFR’s, too. Builders have only been able to sell their houses by buying down the rates for their buyers, etc. They don’t seem very fired up about building more.
Disrupter- in my area, multifamily (‘luxury’) is a place to stash money while it sits vacant (‘allegedly’). Either way, lower and middle class lose more comfortable housing options.
The median home is unaffordable at current interest rates.
The median home is unaffordable at any interest rate.
Totally, and builders are moving to protect their margins, since multifamily is less costly to build. And the Biden administration is forcing local governments to approve more multifamily housing.
And, interest rates need to remain high’ish, otherwise, prices are going to just keep going up and up.
What’s needed is a recession that produces a significant rise in unemployment & foreclosures.
Gen X want to “work remotely” so they can play golf, ride their bike, fish, and watch Fox News when home.
Gen X doesn’t have cable.
I have never had a cable subscription, been online since AOL used to send out free discs. I read Wolfstreet when I’m in one of my homes.
I think you meant Millennials and Gen Z.
Millennials are stuck in the gig economy with contract work or as “independent” contractors. Very few millennials have job security, not even the techies. When they work they may do well, but they are frequently without work. Can’t commit to a long term loan under those circumstances.
Just saw a utuber from Australia complain that his mortgage renewed at the higher rates but many of his friends can no longer qualify/afford their house at the new rates.
Yeah, well Aussie home prices are between 2-5x prices in the US (depending on metric / FX you use). Median household income on the other hand… very similar to the US.
So do the math. If there is a housing affordability crisis in the US, consider what you’d call the situation in the rest of the developed world.
It’s even worse in Canada but the banks are extending mortgage terms towards a hundred years upon renewal for some people. This is what happens when you try to compete with the Chinese for homes.
A lot of construction of MFH and SFH here in Bend. I can’t afford any of it. I make too much money for assistance.
Lifetime renter.
I still remember a comment by a server at the Deschutes Brewery in Bend…. He described living there as “Poverty with a view”.
love all the NEW multi-family = high rents
helps fill up all class C stuff
I have been to Bend many times, and I don’t recall any “views” in town. In fact, I mean no disrespect, but I do not understand the allure of the place at all.
I am guessing we all underestimate the change that is coming. Easy Fed policy and the massive money dumps by Congress all stole from our future and created many poor investments.
DC fighting over raising the debt ceiling by $1.5T with Fed at 5.12% and tightening might be Cinderella’s midnight marking when the illusion caused by easy money ends.
There will be a minsky type moment when the value proposition of purchasing leveraged real estate and stocks going into recession will be unappealing when risk free liquidity is paying 5% plus.
Phoney banking accounting plus all the excess Fed pumped up bank deposits now exiting banks means the banking system is vulnerable to deposit flight. Sure Fed can come up with a new program to save the banks, but they have to keep confidence they can kill inflation without blowing the financial system up.
Risk free liquidity at 5% is less appealing when you factor in inflation. The difference in my IRA RedX date changes dramatically when inflation exceeds income. Only way around it is to reduce spending on things I want, versus things I need or increase my investment risks, with home equity the backstop.
Sol there is always a place to purchase a house, most likely a fixer upper in a bad neighborhood. But put in hard work move up in 5-10 years rinse and repeat worked for me
WOLF
Great charts !! I had no idea the 1970s had such a Multi-Fam boom. Considering the population now is probably double what it was in 1974, it makes the Multi-Fam boom even more impressive.
Because Multi-Fam is more elegant now, it competes with SFH strongly.
I wonder if we will see those 1970s and 1980s Multi-Fams going by way of the commercial buildings of the same era? I’m guessing not because they can be so much more easily renovated and updated.
That might be the next big real estate investment trend (buy and reno the old stuff).
I think Nixon and HUD were responsible for that boom.
Did you take a measured look at those charts? Notice what they all have in common when overlayed with GDP growth charts? Pay attention to what they look like the last 1-2 years. Think we’ll buck the decades-long pattern this time?
Would you please clarify? What is it you are implying?
Most multi are between the two salt water regions.
Building here in Myrtle Beach is out of control !
I’m looking to downsize the house since my wife passed away last December and it’s just me and the dog here.
Today, I started the search for a smaller (~1,500 sq.ft.) one level home to rent or buy. Rents for nice singe family places here on the north side of Houston (The Woodlands – Conroe area) are running $1.05 – $1.25 a square foot. Lots of these out there and lots of newer construction completions for rent.
I priced some new builds: some under construction (not completed or sold yet), and some completed and just sitting there with no buyers. Looks to be the builders are offering 5 – 10% off list and throwing in some amenity upgrades (covered patio, better cabinets, etc). These are smaller tract homes (1,300 – 2,800 sq. ft. in size).
I am surprised at the amount of inventory out there and I sense the market has cooled off here for SFH’s, buy or rent.
What is the $/sqft for new build in N Houston ?
I am looking at tract homes which are priced about $280,000 for around 1,500 sq. ft. or $187.00 sq. ft. This is with limited landscaping and minimal upgrades. This, of course, varies by neighborhood and these are generally “starter” homes for young families and the last stop for old guys like me.
My current home is appraised at $175.00 sq.ft. and that what they have been selling at in my neighborhood over the last couple of years.
AA,
Sorry to hear about your wife passing away. I believe you mentioned she was ill for a long time. Take care.
Thanks, yes she had COPD, which is a slow death.
Sorry for your loss.
My deepest condolence.
AA
Condolences, have followed your comments for awhile
Prayers sent. Wish I had better words to offer.
Thanks, much appreciated.
Anthony A, condolences and best wishes to you.
Maybe a comment on housing but also on inflation just received my tax appraisal notice and value on my 4000 sq Ft home in smith co Tx went from 640k to 900k . They have a cap of 10 percent a year raise in taxes regardless my prop tax inflation just went up 10 percent. Also my electric bill doubled in Jan. We have unregulated power bills in Tx and the higher NG price is driving this inflation. And I’m sure homeowners ins will go up equally as much
Can you really get 900K for your house if you sold? If you can’t then you should appeal the increase.
@Petunia: Unfortunately, this is a painful dance we have to do every year. The appraisal district comes up with some number and the onus is on the homeowner to prove that the number isn’t accurate.
There should be a more sensible approach – could be along the lines of Prop 13 in California – but more equitable between both old and new homeowners.
The current way of appraisal is nonsensical, wasteful, and creates an unnecessary burden on the homeowners.
Multifamily boom on the west side of Phoenix. There is so much coming online right now that all of a sudden apartments are offering concessions, even a couple months rent on a 12 month lease. It pretty much flipped overnight. They are also building a lot of horizontal, detached apartments, AKA build to rent. Many are coming online at the same time. Good time to have your lease expire to take advantage of the concessions. Build to rent homes are popular with developers because they can get around proving 100 year water supply. Huge loophole that our worthless legislature has no intention of closing. Follow the fricken money.
If cuts must be made, do these build-to-rent units that never had a 100-year water supply claimed get hit first?
Doubtful with our legislature. Not about fairness but about money (as always).
We are about 1.5 years out from the stock market peak where stocks compounded at an average annual return of 14% for more than a decade. Makes a lot of people feel rich. Last bottom 2009 the 10 year annualized return was about -6%. Things are going to look different at the bottom.
A colleague of mine is building a 16ft x 14ft deck in the sticks of Minneapolis (45 min from the center of the city) for $160k. Not a porch or patio. Just your typical composite deck.
This hit home for me. I have a tenant, who just last night, thanked me and told me he is living better now than in all his life. He is early 30’s, married, one child, living in a small 1 bedroom apartment. He rents truck space from me. I help everyone I can, as much as I can.
Wow ,hope he got multiple bids ,seems really excessive
Just to be clear, I’m a remodeler and so is my colleage. It’s a brand new home. New home builders won’t build decks up here because it adds too much to the sticker price of the house (it’s inefficient, as I understand it), so you have to find a deck builder/remodeler. They’re all swamped with work, someone gives an FU price, and the owner of a new house says yes anyway.
On the builder side, codes in MN have gotten stricter. You can’t build a deck the way you used to. Now it has to be 6×6 posts, set 44″ deep onto concrete footers, 12″ joist spacing, in this case 9″ stair stringer spacing, earthquake ties to the ledger board (in MN, lol), the list goes on. Technically speaking, homes are built better these days with more redundant systems, at least in the exterior envelope. Yeah, trim has become junk, but the good stuff is still available. If you want mahogany cabinets like in the 70s, you’re going to pay extra for it. Inspectors are stricter too. But the complexity and number of interdependent systems is getting out of hand. Some of it, like the earthquake ties, are driven by big companies like Simpson lobbying states to get codes changed. In the end, those of us that want to keep our license build what they tell us to build.
If he/she is paying $160K to build a deck, then he/she needs head exam asap. Unless its a money laundering scheme…
I’m sure they are not looking at paying $160k, they look and see the monthly payment, and feel they can afford it with the small raise they just got. It will eventually just be one more thing the bank owns.
Piers should be set below the frostline, code or no code, or you’re a lazy builder or homeowner who wants a listing deck. And you’re exaggerating. 6x6s are not going to be called for on the average deck unless it is very tall or heavy. 12″ joist spacing is only called for unless you’re setting 5/4 deck boards diagonally, nor is 9″ stringer spacing ever been called for that I can remember (more like 18″), unless Minnesota has widely independent codes. Most states take the lazy route and adopt or amend IRC/IBC codes, or at least their engineering standards.
Sorry Dave, you’re wrong on all counts. At least as far as local Twin Cities MN codes go. 6×6 posts for all decks, even ground level. Owners want composite decks with metal or glass railings because they don’t require any maintenance. Composite isn’t as strong as wood. Hence the closer joist spacing, and much closer stringer spacing. The cheaper composites also come in more colors, so that’s how they frame them now. And if you frame wood over your stringers, then deck that — to get by with 16″ spacing — the wood will rot before the composite. Someone might be able to build an old school wood deck for $40k, but most homeowners aren’t going for that because of the maintenance involved. If Wolf would let me upload pics, I’d be happy to show you what deck builders put together up here.
Mitry,
Email 2-3 pics to me, and I might upload them.
Well I’m glad I’m not building any decks in Minnesota then. Obviously composite boards flex and are spaghetti, but calling for all framing to be the most stringent case recommended by manufacturers is ridiculous. No composite board sat perpendicular on 16″ OC is going to be a problematic. So basically they’re saying if you build a deck we have to assume the worst case may occur and you have to build it to that standard? That’s like saying you have to build your one story SF house to be able to support three more floors just in case someone decides to build up in the future. Sounds like laws written by the wood products industry.
I call BS. There is absolutely no possible way a deck that size could cost that much.
Have you seen my titanium deck with solid-gold accents? It’s gorgeous.
I’ll do it for 150k
In college in 1975 I wrote a paper on housing in my public policy class. At the time 2 million housing units of new construction a year was not unusual. In the Chicago market at the time typical years were 30,000 to 40,000 units with good years reaching 50,000; now it’s something around 10,000. I read something once that in the boom of the 1920s (which was huge in Chicago) construction reached 100,000 units a year; that’s why there are so many brick three story plus basements apartment buildings and brick bungalows still extant. Those were also the days of lots of available land.
Is there any way to know what proportion of that multi-family is destined to be rentals as opposed to condos/owner-occupied?
Not from this data.
Not surprising to me that new construction is focusing more on multi-family homes as opposed to single family homes. Affordability remains a major constraint for new single family homes with demand from buyers in the gutter.
If this trend holds, it should put pressure on single family housing supply, which could put a floor under housing prices (how dare I say that, we all know housing prices are doomed to fall 30-50% over the next few years!). This may also mean fewer single family houses for “rent” with the future looking rosier for those looking for potentially more affordable multifamily rental options.
In this world we’re one black swan from a 70-90% drop,got to keep peasants poor
Wolf:
Are townhouses considered single or multifamily?
They seem to be the biggest group in Southern Salt Lake County.
Townhome vs townhouse. Legal distinction. Architecture is the same. Townhouse you own the land beneath the structure. Townhome is legally a condo (the HOA owns the land collectively with all other condo owners).
Houses that are attached to each other are still SFH. When you have two or more units in one building then it’s multifamily.
The multi “in construction” approach 1,000,000 units, slightly under 1973
high
The U.S. doesn’t measure land prices over time, but I could guess and say the reason 2-4 unit multifamily is historically low at 1% is because of the peak of land values. Same reason no one can build affordable housing. It’s not profitable because of the high land acquisition cost. Australia is a country that does measure land value/price over time. I noticed Australian land prices peaked in 2021, wonder if they peaked in the U.S. as well?
2-4 units multifamily are not popular, because they are not cost effective anymore (in many cases due to property taxes). 20-30 years ago, one could buy a two/three flat, move into one floor and rent the other one (or sometimes even basement, if it was zoned as livable). It was more than enough for mortgage and expenses. These days, it wouldn’t cover property taxes, let alone mortgage. Not to mention, get a bad tenant and enjoy evicting them while losing monthly rental income.
I think it’s more complicated than that. In many places (Boston for one), there is still an extremely long process that even projects this small need. In many cases that kills the project as the mom & pop developers don’t have the time. The neighbors sometimes get mitigation that makes it uneconomical.
In addition, there is the impact of the ADA as interpreted, which generally means that elevators are required for any multi-story building that isn’t a single family home (which includes townhouses).
Good point.
Not sure if the increase in single family housing construction is a good or a bad sign. Looking at the graphs, which plainly display the housing bubble 1, I see a parallel with the current housing bubble 2.
Housing prices are the tip of the spear. The deflation of an asset bubble is no where as pleasant as the expansion of the asset bubbke.
When I was a kid a federal program (235, I think) let you buy a small starter home with $500 down. If you didn’t have it you could help paint the interior. Needed a steady job to qualify.
Good article Wolf!
I noticed the lumber contract on the CME is being discontinued. The last contract, LBSK23 (May), I believe is the last contract and its last trading day is Monday. It was an important indicator of housing demand and price. Does anyone have any thoughts on the smaller contract that will be replacing it?
SFH are a historical anomaly. They aren’t sustainable for a variety of reasons. First and foremost that they are a net-drain on municipal finances. No property tax covers the infrastructure cost of the street, water, wastewater and electricity for the size of the property. The development ponzi scheme pays for existing infrastructure with new development but that works only for growing cities and towns. The rest squeezes the inner cities and gets more and more potholes, the next flint water crisis, reduced safety and contaminated groundwater thanks to leaking wastewater.
All unintended consequeces from abnormal low density.
Lots of communities on well and septic here in New England.
Walmart announced consumers are still spending strong. There’s no recession in sight.
If the narrative is that the Fed will pivot soon when things collapse, we’re a very long way off.
It depends on how you define a recession. Wall Street defines a recession as any two-day period when stocks don’t rise 3%.
Ha, correct. The problem is that inflation will continue out of control until asset prices are smacked down. The S&P is only about 13% below its all time high. The problem is the Fed’s balance sheet, coupled with the Fed having no credibility that they won’t start printing again as soon as there is any problem.
I believe there will be a significant exit of renters to megasite communities where home ownership will be possible. There are currently 15 locations to choose from. This is America, the mobile employee is part of our history. The creation of the “rust belt” was a real event. It is in the process of occurring again. Affordability and being “in” the game with equity is what will matter. The wage slaves who have no money at the end of the month will all plan on relocating by the beginning of the next school year. Most people forget the population surge that occurred in Atlanta in the late 90s when major businesses relocated too. The long term real estate investor might get left with empty buildings….just like the commercial high rises that are obsolete.
RIP Sam Zell
SFH starts peaked in 2006, two years before the financial crisis in 2008. I wonder if that was coincidence or not.