Slight Gain in Homebuilding Isn’t Enough

July 18, 2019

More construction for single-family homes was underway last month, possibly offering a small relief to markets experiencing an ongoing housing shortage. Most economists, however, say it’s not nearly enough to keep up with buyer demand.

An increase in single-family housing starts in June helped to offset some of the drop in multifamily production, but total housing starts still edged 0.9% lower in June to a seasonally adjusted annual rate of 1.25 million units, the U.S. Commerce Department reported Wednesday. This marks the second consecutive month for a decrease in U.S. homebuilding, even though this is traditionally the busiest time of year for housing.

Broken out, single-family starts rose 3.5% in June to 847,000 units, which did make up for some of the sector’s decrease in May. The volatile multifamily sector, which includes apartment buildings and condos, dropped 9.2% in June to a pace of 406,000 units.

“The relatively flat housing starts data in June is due to a decline in multifamily production, which still remains somewhat elevated due to affordability concerns in the for-sale market,” says Robert Dietz, chief economist of the National Association of Home Builders. “The census data show that the only region showing single-family construction gains for the first half of 2019 is the South, where housing is generally more affordable relative to incomes.”

However, last month, the South posted a 9.2% drop in combined single-family and multifamily housing starts, while the West saw a 4.9% decline. On the other hand, combined starts in the single-family and multifamily sector rose in June by 31.3% in the Northeast and by 27.1% in the Midwest.

Builders have reported several challenges in ramping up new-home inventories in markets nationwide, despite persistent calls from the real estate industry to do so. Builders say labor and lot shortages and the rising costs of building materials have prevented them from increasing construction.

The challenges don’t appear to be easing either. Housing permits, a gauge for future housing production, fell to a two-year low in June. Permits nationwide dropped 6.1% last month to a 1.22 million unit annualized rate. Single-family permits last month did eke out a 0.4% increase to 813,000 units, while multifamily permits dropped 16.8% to a 407,000 pace.