Dive Brief:

• Starts for buildings with five or more units declined 32.9% year over year to a seasonally adjusted rate of 322,000 in April, according to a report from HUD and the U.S. Census Bureau. 
• Developers pulled permits for a seasonally adjusted rate of 408,000 apartments in buildings with five units or more in April, a 23% YOY drop. They completed 516,000 apartments in buildings with five or more units in the same period, an 18.1% increase. At the end of the month, 919,000 units were under construction, a 1.6% YOY decrease.    
• Overall, housing starts came in at a seasonally adjusted annual rate of 1.4 million in April — a 0.6% decline YOY. Single-family builders broke ground on 1 million homes — a 17.7% YOY increase.

Dive Insight:

April’s report follows a significant decline in construction during the first quarter. Only 80,000 apartments were started in Q1, dropping 39% YOY. 

The vast majority of those multifamily starts — 75,000 homes — were rentals, according to a National Association of Homes Builders analysis of Q1 Census data. The remaining 5,000 units were condos.

At one point, almost 20 years ago, condos took a larger share of the market. In Q3 2005, they were 47% of the market. From 1980 to 2002, they took a roughly 20% share.

“The market share of rental units of multifamily construction starts was flat at a still elevated 96% for the first quarter as the already small condo market remained held back due to higher interest rates,” wrote Robert Dietz, chief economist for the NAHB.

BTR boost

As condos have taken less market share from apartments, rentals constitute a larger percentage of single-family starts. In Q1, build-to-rent represented 8% of single-family starts, according to Dietz. Traditionally, they’re closer to 3% of the market.

Overall, approximately 18,000 BTR starts occurred during Q1, a 20% year-over-year increase, according to the NAHB. Over the last four quarters, 80,000 such homes began construction, a 16% increase.

“The single-family build-for-rent market is a source of inventory amid challenges over housing affordability and down payment requirements in the for-sale market, particularly when a growing number of people want more space and a single-family structure,” Dietz wrote. 

However, Dietz notes that investor interest in new and existing single-family homes has cooled as interest rates have risen. “Nonetheless, builders continue to build smaller projects of built-for-rent homes for their own operation,” he wrote.

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