Housing permits are up for single homes but down for big apartments
Housing permits are up for single homes but down for big apartments
It’s a tale of two homes in the housing sector these days: Housing starts and building permits fell last month for bigger apartment buildings; but for single-family homes they rose.
Homebuilders are not feeling particularly thrilled about starting on new apartment buildings these days. Groundbreaking on buildings with five units or more was down almost 16% in September from the year before. Permits were down more than 17%.
“The reason I think we’re not seeing as much enthusiasm among multifamily developers is that we still have a significant amount of multifamily construction in the pipeline,” said Danielle Hale, chief economist at Realtor.com.
Homebuilders don’t want to build a ton more apartment buildings because they are already building them, and they’re kind of over it.
“In fact, if you look at the number of multifamily units that’s being completed, in the most recent data, it was up almost 42% compared to a year ago,” Hale said.
Forty-two percent! So with all that new building, Hale said, rental vacancy rates are kind of in the normal range of 6%-7%, and there’s not a huge incentive to keep on building like that.
But also, it’s difficult right now to pay to build a big new apartment building.
“Banks have reduced credit access for multifamily developers in fairly large margins, so multifamily developers are having a hard time finding financing,” said Jackie Benson, an economist with Wells Fargo.
Banks, she said, see the phrase “commercial real estate” and it’s a no for them.
“It’s just higher risk,” she said.
But over in the world of single-family homes, things are different. Builders broke ground on more of them in September than a year ago, about 5.5% more, partly because they’re just easier to do than apartments, and cheaper and faster.
“Single-family homes can be delivered on a smaller scale. You can roll units out by the individual units or by the dozens,” said Paul Habibi, founder of Grayslake Advisors, a real estate expert services firm.
“When you have a volatile interest rate environment like we’ve had, builders might prefer this shorter timeline that allows them to get quicker returns,” he said.
Wells Fargo predicts as interest rates and mortgages come down, we should see construction of both single-family homes and apartments bump up in the next year or two.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
