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Rental Apartment Construction Up Says Handy DogHousing starts, or the number of new construction projects that broke ground in November, skyrocketed upward by 22.7% in November, according to the monthly report released by the U.S. Census Bureau.  The seasonally-adjusted annual rate of housing starts was 1.09 million, well exceeding analysts’ expectations of a rate of 963,000. 

Contributing to that leap, apartment buildings with 5 or more units saw a construction spike of 26%, with an annual rate of 354,000, showcasing the strength of the rental market and developers’ anticipation that rents (and demand for rental dwellings) will continue to rise in 2014. 

Single-family homes also saw a jump in housing starts in November, of 20.8%.  The seasonally-adjusted annual rate for single-family home construction was a whopping 727,000 (a level not seen since before the Great Recession, in March 2008).

November’s construction rate represents a powerful 29.6% increase from November 2012, showcasing just how robust the housing recovery has been in the last year.

Still, amidst the buzz surrounding the high-flying housing starts data, there is some negative news and reason for caution.  New construction permits, which show a glimpse into the further future than actual starts on construction projects, were down in November.  Overall building permits dropped by 3.1% in November, fueled particularly by a steep 11.5% drop in apartment buildings with 5 or more units.  Conversely, single family home building permits lifted slightly by 2.1%, offering some insight into large developers’ forecasts of what housing markets will look like in late 2014 and in 2015.  The booming demand for rent cannot last forever, and as rents rise more tenants will look to buying their first home (and potentially saving themselves money each month). 

Apartment Building ConstructionGiven that the homeownership rate in the United States seems to have bottomed out at 65% and started to rise slightly, it only makes sense that the trend back towards homeownership among those sitting on the fence may already have begun.  Household formation rates tumbled during the Great Recession, and the subsequent “unbundling effect” as people moved back out on their own is for many a multi-step process: first rent a place for a year or two, save some money and then buy a home.

Still, cities with strong private-sector job growth (such as Austin and San Francisco) are showing no signs that demand for rentals will drop any time soon.  Most analysts agree 2014 will see continued strong rents, and the migration back to homeownership will be slowed by inevitably rising mortgage interest rates.

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