Multifamily Starts Rise This Fall
After staying below 300,000 for four consecutive months, starts in buildings with five or more units surged by 20% in September, to a seasonally adjusted annual rate of 328,000. Permit activity (which can be an indicator of future starts) also was relatively strong. The rate at which five-plus permits were issued was 358,0000 — up significantly both on a month-to-month and year-over-year basis.

Source: U.S. Census Bureau; NAHB Economics Group

Meanwhile, the backlog of unused permits in the pipeline at the end of September was 56,500 — little changed from August. A production rate above 320,000 is probably unsustainable, given that the five-plus rental vacancy rate remains quite high (11.5% in the third quarter). On the other hand, condos and low income housing tax credits provide considerable support to the market — so a production rate in the 260,000-270,000 range (as we witnessed from May through August) was too low to be sustained, and the market was due for an upward adjustment.

NAHB is forecasting a five-plus starts rate of 297,000 in the fourth quarter, and a roughly constant rate in that neighborhood for 2005 and 2006. That would be in line with the numbers posted in 2000 and 2001, but slightly below the levels of 2002 and 2003. Nevertheless, 297,000 five-plus starts represents a solid year for multifamily production. [ return to top ]