Apartment Production Spikes to an Unsustainable Rate

The Census Bureau’s preliminary estimate for starts in buildings with five or more apartments in March came in at a massive (seasonally adjusted annual) rate of 392,000 units.  In the Census construction report, this shows up as a 27 percent increase over February.  However, the number for February was itself revised upward by 24,000—so the five-plus starts rate for March is actually 38 percent higher than the production rate we thought prevailed a month ago.

MF Starts through March

At 392,000, the five-plus starts rate is the highest it’s been since January of 2006 (a one-month anomaly that at the time was explainable as the industry’s response to changing building codes in some states).  Even if we smooth some of the volatility out of the five-plus starts series, the 3-month moving average is up to 325,000.  That’s above the annual number of five-plus starts in any year since the 1980s, so even the current moving average seems a bit too high to sustain going forward—a contention supported by the permit numbers in the latest construction report.

The report shows that, in March, the (seasonally adjusted annual) rate at which new five-plus permits were issued dropped 8 percent to 283,000, while the number of five-plus permits waiting in the pipeline (previously issued but not yet converted to starts at the end of the month) declined 19 percent, to 38,400 (not seasonally adjusted).

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0 replies

  1. From looking at the graph and the historical trend, it looks like the 17 year average, prior to the market crash in 2008, was right around 300k unit/year. Since 2008, the numbers have been down considerably. Yet, there are still people graduating, leaving home, moving in from other contries, etc. America is still growing. It would seem that the current spike is just making up lost ground for the pent up demand of poeple still living at home or sharing housing with friends and family.

  2. Brennen’s comment is spot on. As an industry, we have been undersupplying new apartments since the 1980’s.

    Additionally, it is critical to analyze specific markets and submarkets rather than lump them all together. This is what we do for our builder clients. When you look at that, you will find that some markets are potentially heading toward oversupply, but most markets are a long way off from it.

    Patrick Simons, Principal, Strategic Property Economics, speconomics.com.


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