Part of my general thesis behind a robustly recovering US economy was that we would see a marked increase in the construction of multi-family housing units.
The press continues to note the general strength of this segment but relative to my view of the economy it has continued to disappoint.
Here are Multi-Family starts over the last two years.
That might look impressive until you compare it to what a real boom looks like
The “hopeful” argument is that while the absolute increase is much smaller this time around the pace is actually a bit faster, a four-fold increase rather than a 3-fold increase.
However, given the current conditions in housing I was looking for an even stronger snap back. This alone will not be enough to push the economy into a boom. We need a series step-up in the rate of growth.
What’s worse from a long run perspective is that the failure of multifamily to bounce back potentially sets up single family for a new bubble. With rents tight and likely to get tighter, buying becomes a better and better deal.
This has the potential to bring out both investors and first time buyers in droves. That in turn will lead to an extremely rapid draw down in inventory, which leads to a stabilization in prices, which leads to looser lending standards which leads to a boom in buying.
That kind of instability is difficult to manage. Economic stabilization going forward would be better if there was a larger stock of multifamily rental housing, yet that is looking increasingly unlikely.
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Tuesday ~ April 17th, 2012 at 10:12 am
Lord
Demographics are against larger growth in multifamily. The growing population segment will be among the retired which own or need subsidized housing. Rentals grow around age 20-25 and first homes are bought around age 25-35. With people buying because buying was cheaper than renting, costs are higher even if rental prices don’t increase. While collateral values will firm anyone lowering standards can’t expect bailouts in the future.
Tuesday ~ April 17th, 2012 at 10:48 am
onionmahoney
Check this out on Boston dot com:
http://www.boston.com/realestate/news/blogs/renow/2012/04/at_these_rents.html?camp=obnetwork
Tuesday ~ April 17th, 2012 at 12:55 pm
rjsigmund
you have the cart before the horse, again…you have to get young people back to work & raise minimum wage before you get your housing boom…
Tuesday ~ April 17th, 2012 at 2:17 pm
Tuesday links: choosing depression | Abnormal Returns
[...] Why hasn’t multi-family starts surged even more? (Modeled Behavior) [...]
Tuesday ~ April 17th, 2012 at 2:38 pm
Observer
Lord is on to something. One of the reasons for the big booms in multifamily housing in the 70′s and 80′s was because the baby boomers were in the right demographic age for renting (20′s and 30′s). You don’t have that now.
Also, with a lot of foreclosed houses being turned into rentals, that will take some steam off the need for new rental units.
Tuesday ~ April 17th, 2012 at 2:44 pm
Observer
Also, *permits* for multifamily look like they might be breaking out:
http://research.stlouisfed.org/fred2/graph/?id=PERMIT5
Tuesday ~ April 17th, 2012 at 5:49 pm
The Slow Rise of Multi-Family Housing « Modeled Behavior « SWMortgageBlog
[...] The Slow Rise of Multi-Family Housing « Modeled Behavior. [...]
Tuesday ~ April 17th, 2012 at 8:59 pm
Benny Lava
Related news: http://news.yahoo.com/us-homebuilders-request-most-permits-3-years-142317759–finance.html
Wednesday ~ April 18th, 2012 at 4:32 pm
Joseph
So what’s with commenters citing old “status quo” demographics as an example of what to expect from people in the modern era?
Older folks are looking to downsize their oversized single family houses and are looking at multifamily options in walkable neighborhoods, i.e., rentals.
The younger cohort is rejecting the common wisdom of setting a goal of buying a single family house in a car-dependent neighborhood, and wants multifamily options in walkable neighborhoods, i.e., rentals.
In short, the boomers and the millennials are both looking for multifamily in traditional urban neighborhoods, but there is a shortage of these units due (often) to zoning maximums, driving up rents. There is simultaneously an excess supply of single family homes, not only for qualified buyers but also for market demand.
Why would we sit on our hands and forsake piles of profits in the multifamily sector over the next decade? Preferences change, people, and the old data is not reflective of our current reality. We are denying ourselves profits in a housing sector that is severely undersupplied nationwide, and insisting that the future remains in a market that is painfully oversaturated and no longer reflective of market preferences.
Friday ~ April 20th, 2012 at 9:08 pm
The New Normal in Housing
[...] Karl Smith, looking at multi-family housing starts, sees the glass a half-full: The “hopeful” argument is that while the absolute increase is much smaller this time around the pace is actually a bit faster, a four-fold increase rather than a 3-fold increase. [...]
Tuesday ~ April 24th, 2012 at 2:23 pm
Housing Data Disappoint … Again | The Realities of Real Estate
[...] duplexes—all of which were underbuilt during the housing boom. Some people believe the U.S. is still not building nearly enough rental units, especially considering the relatively high cost of owning. Which makes [...]