Multifamily Starts Surge in August but Permits Fall

Starts for multifamily housing surged recently, but the volume of building permits slowed.

According to the U.S. Census Bureau’s monthly report, the annual rate for total residential starts increased 12.2% from July to 1.575 million units. The bulk of that increase in starts was on the multifamily side, which surged 28.6% for the month to an annual rate of 621,000 units. Single-family starts increased a moderate 3.4% to 935,000 units, but remain below the one million level maintained from August 2020 through June 2022.

High inflation, weakening builder sentiment, and increasing mortgage rates added to the industry’s previous list of headwinds, exacerbating a pullback in the single-family market as multifamily development continues to grow.

The forward-looking building permit data signals a continued slowdown as total residential permits fell 10% from last month’s annual rate to 1.517 million units. As with starts, multifamily contributed the larger share of that trend with 571,000 units permitted, a decrease of 18.5% from July. Single-family permitting slipped 3.5% to 899,000 units, the lowest level since June 2020.

Despite the August decline in the annual rate of multifamily permitting, the trend since the end of the pandemic lockdown period has been sharply up for the multifamily industry.

On a year-over-year-basis, both single-family and multifamily permitting are down about 15%, as are single-family starts. However, multifamily starts are up 31% from last year’s annual pace.

Construction delays are continuing, primarily for multifamily projects, as year-over-year multifamily units authorized but not started increased 31.2% from August 2021 to 143,000 units. Also at 143,000 units, the number of single-family units authorized but not started has decreased slightly from the roughly 150,000-unit level earlier in the year.

Because of these construction delays, multifamily completions decreased 20.7% from July’s annual rate to 318,000 units. This annual rate is about 6.7% below last August. Single-family completions were about even with July’s at 1.017 million units but were up 6.5% from one year ago.

The annual rate for multifamily permitting was down in all of the nation’s four Census regions from August 2021, with the largest annual decrease in the South region (down 20.3% to 251,000 units). The small Northeast region’s annualized rate decreased 17.4% to 71,000 units. Meanwhile, the West region decreased by 8.1% to 170,000 units, while the Midwest region decreased by 3.7% to 78,000 units from last August. Compared to the previous month, permitting was down in all regions as well, particularly in the South and Northeast.

Unlike permitting, multifamily starts were up in three of the four regions, with a big annual increase in the South (69% to 350,000 units). Starts in the West were up 25.4% (to 133,000 units) and 1% in the Northeast (to 97,000 units), while the Midwest region declined 37.4% (to 40,000 units). Compared to July’s pace, the South and Midwest were up, while the Northeast and West were down.

August’s decrease in annualized multifamily permitting at the national level is not reflected in the actual annual permitting totals at the metro level. All but one of the top 10 permitting markets increased their annual permitting through August compared to the same 12-month period one year ago, and all but three increased from July’s annual figures.

July’s hot permitting markets remained hot in August with nine of the top 10 returning and the first six remaining in order. Not surprisingly, New York continues to lead the nation in multifamily permitting, totaling 41,335 units through August, up by more than 7,300 units from last year.

Austin returned at #2 with 23,415 units permitted but that is down by 1,593 units from one year ago. Houston and Dallas remained at #3 and #4 with 22,689 and 20,489 units, respectively. Philadelphia returned at #5 with 18,647 units permitted, and while that is more than 4,000 units greater than last year, it is about 1,200 units fewer than in July.

Seattle once again held the #6 spot with 18,145 units permitted, about 2,900 (or nearly 20%) greater than the previous year, while Washington, DC slipped into the #7 spot with 17,172 units permitted for the year. The nation’s capital jumped by almost 25% from last year, with almost half of that increase in the past month.

Atlanta jumped into the top 10 this month, replacing Denver at #8 with 17,088 units permitted, more than tripling the annual rate from one year ago. Atlanta may be dealing with some lagging permitting issues that appear to have lowered their numbers in the recent past and is now catching up.

Phoenix and Minneapolis-St. Paul round out the top10 with 16,871 and 16,291 multifamily permits, respectively. Both are around 3,500 units greater than last year.

As mentioned, nine of the top 10 multifamily permitting markets increased their annual totals from the year before and they were generally large increases, ranging from a low of 2,879 units in Seattle to just over 13,000 additional units in Atlanta. Half of the top 10 markets increased multifamily permitting by at least 4,000 units over last year’s pace.

Other markets outside of the top 10 that saw significant year-over-year increases in annual multifamily permitting in the year-ending August were Tampa (+4,291 units), San Antonio (+4,001units), Colorado Springs (+3,769 units), Richmond (+3,356 units), Indianapolis (+2,867 units) and Raleigh/Durham (+2,647 units).

Significant slowing in annual multifamily permitting occurred in Nashville (-5,886 units), Anaheim (-2,371 units), and Tacoma, WA (-1,212 units).

The annual total of multifamily permits issued in the top 10 metros – 212,142 – was about 28% more than the 165,933 issued in the previous 12 months. The total number of permits issued in the top 10 metros was almost equal to the number of permits issued for the #11 through #37 ranked metros.

Below the metro level, eight of last month’s top 10 permit-issuing places returned to this month’s list with the first three remaining in the same spot and several others changing places. The list of top individual permitting places (cities, towns, boroughs, and unincorporated counties) generally include the principal city of some of the most active metro areas.

The city of Austin and the city of Philadelphia remained in the top two spots with impressive permitting totals of 15,230 units and 15,072 units, respectively. The unincorporated portion of Houston’s Harris County remained #3 with a permitting total of 9,302 units.

The cities of San Antonio and Houston each moved up one spot from last month to the #4 and #5 spots, displacing the city of Denver down to the #6 spot. Unlike their metro-level counterparts, the first six permitting places totaled slightly fewer multifamily permits than their annual totals in July.

The city of Phoenix and the city/county of Mecklenburg County (Charlotte) switched places from last month’s list as the city of Phoenix increased its annual permitting while Mecklenburg County declined.

The city of Atlanta jumped onto the top 10 list at #9 with 6,460 units permitted, joined by additional newcomer Unincorporated El Paso County (Colorado Springs) at #10 with 6,355 units permitted.