Starts are Down — Way Down

Following the previous month's surge, starts in buildings with five-or more apartments fell to a (seasonally adjusted annual) rate of 247,000 in March. This is down more than 24% from February, and about 1% year over year. If sustained over a full year, 247,00 units would be the weakest year for 5-plus production since 1995. Meanwhile, the rate at which new five-plus permits were issued (which can be an indicator of future starts) fell another 4% in March, to a seasonally adjusted 286,000—the lowest number posted since October of 2000. 

These numbers are coming in during a period of weakness in homeownership and single-family construction that should tend to benefit the multifamily segment of the industry. But there are factors that prevent single-family weakness from  translating directly into higher multifamily starts. One is that a significant share of five-plus production consists of condominiums, which tend to suffer from the same forces affecting single-family construction. Also, problems that originated in single-family mortgage markets have spread to credit markets more generally, and are making it difficult to obtain many types of loans—including loans needed to finance the acquisition, development, and construction of new multifamily properties.