MultiFamily Market Outlook - 05/14/2004 (Plain Text Version)

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In this issue:
More Multifamily Units Built in 2003; New York City Leads the Pack
Continued Strong Starts May Lead to Overbuilding
Economy Perks Up — But Rents Do Not
GDP and Jobs Rise — Interest Rates Soon Will As Well
Stocks Fell Last Month and Multifamily Stocks Fell a Bit Further

More Multifamily Units Built in 2003; New York City Leads the Pack

The number of multifamily units permitted for construction in the U.S. went up 3.2% from 2002 to 2003, according to annual totals just released by the Census Bureau. But that increase — which seems modest when compared with the 9.6% increase in single-family permits — is only an average. The more interesting questions, those that an average doesn’t answer, are “Which cities have seen a boom in multifamily construction, and which have put on the brakes?”

Topping the list for multifamily permits in 2003 is the greater New York City area, which recorded 21,020 such permits. That city’s 2003 total of units built was more than 2,000 higher than the previous year, in which New York also was ranked number one with 18,617. This is New York City’s eighth straight year in the top 10.

That represents a gain of 13.5% over 2002, and is more than double the level of construction 15 years ago in 1988, when New York City ranked only 11th in multifamily permits.

The 2003 total had New York leading the nation in multifamily housing permits by a large margin, with 4,880 permits more than second-place Houston. After Houston’s 16,140 total, the next most active markets were Chicago at 12,480; Atlanta at 11,270; and Los Angeles-Long Beach at 10,580.

Many of the most active cities were in the South and West. Houston, which climbed from 13th place in 2001 to second this year with a 131% rise in permits, shows no signs of slowing down. And Tampa-St. Petersburg rose from number 10 in 2002 to number 7 in 2003, with a 52% increase in permits issued.

In the 177 cities and metro areas appearing on the annual rankings, 17 were in California. Many of California’s cities experienced large increases in multifamily permit activity this year, with 11 of 17 metro areas showing increases. This high level of activity — nearly a 40% rise statewide — means that one out of every eight multifamily permits issued in the U.S. was for a unit in California. Most of the California cities reporting increases had bounced back after a widespread contraction in multifamily construction in 2002 to a level higher than they reported in 2001.

Atlanta remains number 4 on the list with 11,270 permits issued, even though there that represents a 31% decrease in the previous year’s 16,400 permit level. The decrease may have something to do with the fact that the city’s rental vacancy rate is now the highest it’s been in 10 years.

Looking at the big picture, we see that 22 metro areas showed increases of 1,000 permits or more in 2003, and only 13 metro areas had decreases of 1000 or more. The March 2004 year-to-date totals indicate that the high levels of permits are continuing — permits for 93,990 multifamily units have been issued as of March 2004 —5% more than last year’s total of 88,940 for the same time period.

If you want to examine current permit data, click to see data for major metropolitan areas for single-family, multifamily and total permits.