Single Family Home Construction Down – Multi-family Rising

Builders broke ground on fewer single family homes in July. Starts of single family homes normally represent about 70% of all home construction, and these starts slipped by 5% in July. Apartment building during the same period rose 6%.

The number of homes under construction is the lowest in 40 years, at just 413,000 units. A decade ago, this number stood at 1.6 million homes built. Although new homes only represent about 20% of the overall housing market, their economic impact is high. According to the National Association of Homebuilders, each new home built creates an average of three jobs for a year and brings in about $90,000 in tax revenue.

Economists generally consider a new home sale rate of 700,000 units/year as healthy. June’s annualized rate was only 312,000 units. Factoring in all of the distressed homes on the market, re-sale homes comprise a better value for buyers than new homes in the current market. New homes currently carry a 30% higher price tag than the median price of an existing home. This doesn’t give builders much of an incentive to take on the risk in building spec homes.

At the same time that it’s tough to coax a builder to break ground on a single family home, apartment and multi-family construction is on the rise. Apartment construction rose by 34.7% in the Northeast and 5.6% in the South in July. With rising rental demand and higher median rents, there is definitely a market for new multi-family homes, and builders are taking advantage.

This isn’t really a threat to single family rental home investors, as there is still a definite preference for renting a home with a yard to an apartment or condominium. With plenty of inventory from which to choose at rock-bottom prices, and increased demand and rent incomes, it’s a good time for landlords.