Apartment Construction Ominously Nears 25-Year High

If you live in a major U.S. city and look out over the skyline, chances are good youll see construction cranes. Lots of them. Only twice in the past 25 years have new apartment buildings been going up as fast as they are right now. Thats not necessarily a good omen. The first time, in February 2000, was right before the dot-com bubble burst. The second time, January 2006, came right before the housing bubble burst. Now we learn that builders broke groundon 423,000 new multifamily units inJuly, right before who knows what?

Monthly building data released earlier this week by the Census Bureau and the Department of Housing and Urban Development showed that new home construction overall posted strong gains in July, with the highest number of new home starts in eight months. The comeback largely manifested in an uptick in apartment buildings with five or more units, which saw an almost 50 percent increase in new starts in July over a year earlier. By comparison, starts on single-family homes were up only about 10 percent over the same period.

Thats part of the reason that the Northeast, with its large, dense cities, saw the biggest monthly increase, up 44 percent from June. That matches the analysis byTrulia (TRLA) Chief Economist Jed Kolko, who found that among metro areas, Boston and New York are building more than in the past.

In the 25 years since 1989, the U.S. has started building at an average annual rate of about 248,000 new multifamily units. By that measure, our current 423,000 is a veritable boom. Still, construction in the the U.S. has come at a far faster pace in the past. During the 25 years leading up to 1989, builders broke ground on 467,000 units each year, on average. In the early 1970s, the rate briefly hit 1 million new units a year.

The recent building spree is a response to the current urban housing crunch. For a good part of the last quarter-century, the suburbs absorbed the growing population. They ran out of steam in the early 2000s, and citieswith mass transit and cultural cachethave made a comeback. As these new apartments come online, rents may ease. Just how much depends on just what kind of omen the figures for July 2014 turn out to be.

Originally posted here:
Apartment Construction Ominously Nears 25-Year High