Once a month, following the release of the latest housing construction numbers, there is what seems like a flood of news stories about the new numbers. Most of the headlines compare the month-to-month change-i.e., May numbers are compared to the April numbers and April numbers to March’s and so on. There are a couple of issues with interpreting the numbers in this way:
- Data volatility. While the numbers are useful to track, the NMHC Research Department doesn’t recommend looking at month-to-month changes as an indication of trend. The monthly numbers can be volatile and are often revised in later releases. To get a better picture of that volatility, here is a look at the month-to-month numbers for multifamily (5+ units in the structure) building permits since January 2000:
The
numbers vary dramatically month to month, making it difficult to distinguish
any sort of pattern from these numbers.
For
comparison, here is a similar permit chart, but the data presented on a
quarter-to-quarter basis. This version shows a more discernable trend in the
numbers:
Historical context. When examining housing data, it’s important
to remember context. At least 300,000 new multifamily units are needed every
single year to meet apartment demand. And that’s at a minimum; that number
could be as much as 400,000 new units. Many news stories of late have focused on themore recent increase in the number of multifamily units being built. However,too often the stories fail to acknowledge that the industry went through a longperiod of chronic under building through the recession and is now stillcatching up with that unmet demand.
The following chart shows the number of multifamily completions on an annual
basis since 2000. For several years, completions were nowhere near the
necessary minimum of 300,000 new units:
So, here’s the bottom line: Yes, multifamily construction is increasing, but there is still a long way to go before there is concern about widespread overbuilding.
Both multifamily permits and starts initially had a fairly large increase from March to April 2014 (+81,000 for permits, + 124,000 for starts), but as often happens, those numbers were revised in the most recent data release, to reflect an increase of 64,000 for permits and 98,000 for starts during that time period. Additionally, month-to-month increases of this magnitude also have occurred in recent years, only to have the following months’ numbers decline. While permits and starts increased significantly from March to April, permits and starts actually declined from April to May (-89,000 for permits, -33,000 for starts). Moreover, recent construction data could reflect the industry’s recovery from the lingering effects of the past winter’s polar vortex, which, in many areas of the country, drastically crimped firms’ abilities to either start, continue and complete their work.
