Every time the issue of housing affordability comes up the answer is the same: “Supply”. Of course there is a lot underneath that one simple word. There are entire industries underneath it – builders, developers, local governments, the entire supply chain for raw materials, etc etc. I’m not going to untangle the entire spiderweb, but I did want to get smarter on the topic. So I grabbed new construction data, tossed it into Tableau, and waited to see what came out the other side.
History
Let’s start with the history lesson. Multi-Family construction activity peaked in 1972-1973 when there were 1.04 million permits issued and 780,000 projects completed. Single Family residential construction remained pretty steady throughout the 70s, 80s, and early 90s roughly matching the cyclical trend of Multi-Family. The Single Family construction peak in that time period was in 1978 with 1.18 million permits and 1.37 million completions.
That started to change around 1995 when Single Family began taking off and diverging from the trend of Multi-Family. From 1996 to 2005 the number of permits for Single Family homes grew a whopping 57% and the number of completions grew 45%, compared to Multi-Family during that time period which grew 34% and 2.8%, respectively.
Looking past 2005, what stood out to me is the rate of recovery from the Great Recession in terms of new construction permits. Single Family construction permits slowed to a crawl, increasing only 95% between 2009 and 2019, compared to Multi-Family permits that grew 298% in that same time period. And this is after permits for both housing types fell about the same amount between 2005 and 2009.
Today
What about the recent trend? This is where it gets fun.
First we will focus on Single Family. If you ignore the spike in permits in 2021 (let’s treat that as a pandemic outlier), the growth rate for Single Family permits between 2009 and 2022 (121%) is roughly the same as the rate between 1991 and 2005 (123%), albeit with a lower volume. Looking at Single Family starts and completions, they have also been increasing steadily, roughly matching the trend seen in the runup to 2005.
On the Multi-Family side, permits and starts have exploded over the last decade. Multi-Family Permits issued between 2009 and 2022 have grown 424%, and starts have seen a similar increase. As of 2022, Multi-Family permits and starts were at a level not seen since the mid-1980’s.
But what about completions? Multi-Family completions in a similar time period have only increased 176% – compared to the 400%+ growth of permits and starts. So the data shows that completions could not keep pace with the rapid growth of permits.
And that gets us to this year. The final chart below compares Multi-Family permits and completions in 2023 with recent years. The chart clearly shows the slowdown in permits (-20%) in 2023 and the uptick in completions (+25%). This tells me that the backlog is being worked through while builders and developers play catch-up.
Summary
After diving into this I predictably have more questions than answers, but a few things stood out to me:
- The trends in Single Family and Multi-Family construction mirrored each other up until the early 90’s when Single Family began to take off (what happened in the early 90’s?)
- The growth rate of Single Family permits and completions in the last decade roughly matches the rate seen in the run-up to 2005
- Multi-Family permits have exploded in the last decade reaching levels not seen since the mid 1980’s (why?)
- Multi-Family completions reached a relatively steady state between 1995 and 2009, and similarly reached a consistent level between 2015-2022…and are now experiencing an uptick in 2023 (how high will this uptick go? Will it go back to a steady state in 2024?)