Report: Residential Construction Shifts Away from Multifamily

November 14th, 2016 by Nick St. Denis

The multifamily construction sector is finally leveling out after a half-decade of solid growth. Multifamily building had carried the residential sector throughout the economic recovery, but that trend is shifting in favor of single-family housing, according to Dodge Data & Analytics’ 2017 Dodge Construction Outlook.

Dodge chief economist Robert Murray presented Dodge’s forecast last month in National Harbor, Md., at the firm’s annual Outlook Conference. Murray said residential construction as a whole is estimated to advance 5 percent in 2017 in number of units, following a 2-percent gain in 2016 and a 12-percent spike in 2015.

Single-family housing will climb 9 percent next year after a 7-percent increase in 2016. Meanwhile, multifamily housing is set to retreat for the second straight year. The segment it projected to slide 5 percent in 2016 and another 2 percent in 2017.

According to Dodge’s report, “the rental side of the housing market increased at the expense of the owners market” during the multifamily expansion. “As the single family market more fully recovers from its hangover, however, multifamily housing is now losing steam. …2015 now appears to be the peak of the cycle for multifamily housing.”

Murray said low mortgage rates and low inventories are two positive factors that should help strengthen single-family housing. “However, the 20-percent down payment requirement is still restraining first-time homebuyer demand, along with high student debt of the millennial generation.” Murray added that a shift in demographic demand could contribute to an improved single-family housing market, but that depends on whether millennials will continue to prefer living in urban developments.

While apartments led the early upturn for multifamily, condominium development has returned, Murray said. The multifamily segment has been helped by a push for downtown redevelopment, and demographics have provided support, from both empty-nesters and young adults.

The New York metropolitan area has dominated multifamily construction the last few years. According to Dodge, the dollar amount of multifamily starts in New York City reached $21.6 billion. This accounted for 26 percent of the nation’s total and eclipsed the sum total starts of the next seven metropolitan areas.

More than half of all multifamily construction was concentrated in eight metropolitan areas, which Murray concedes is “difficult to sustain.” Still, Murray said increased construction in markets such as Chicago and Atlanta are helping partially offset a decline in the New York area.

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