Apartment construction just fell off a cliff.
May’s New Residential Construction data from the Census Bureau, released Tuesday, showed housing starts down 15.4 percent from April and 8.7 percent year over year.
But the headline number understates a more significant drop: multifamily starts collapsed 41.6 percent in a single month, falling from 486,000 to 284,000 units on a seasonally adjusted annual basis.
Single-family starts, by comparison, barely moved, falling 1.9 percent to 882,000, a decline the Census Bureau’s own margin of error makes statistically indistinguishable from flat.
Single-family is grinding, not collapsing
The surface-level read on May’s data — starts down big, bad month for homebuilding — misses the split underneath it. Single-family and multifamily are not moving together right now.
“Single-family starts are what tell us where homebuilding is actually headed, and they’re grinding lower slowly, rather than falling off a cliff,” said Maor Greenberg, co-founder and CEO of Spacial.
Single-family permits in May came in at 886,000, fractionally above April’s revised 881,000. That’s not growth, but it’s also not deterioration.
“So, this is a plateau, not a steady decline,” Greenberg told Inman. “But a plateau at the low end is not recovery.”
Greenberg said permits are the leading indicator for future starts, and right now they point to a flat fall.
“With completion also slowing, the pipeline is not refilling, which means a quieter construction calendar over the last six months of the year,” he said.
Rates, costs, affordability
The multifamily story is simpler and more painful, according to Greenberg.
“Rates, material costs and affordability are not three separate stories — they push in the same direction,” Greenberg said. “Rates hit multifamily projects first because apartment projects run on construction loans and pro formas that only work at certain rates.”
Greenberg said that when financing gets expensive and uncertain, that math breaks down, and you get a 41.6 percent drop in apartment starts. “A single-family home does not carry the same financing load,” he said.
A one-month swing that large is unusual even for a data series known for volatility. “The size of the multifamily drop surprises me,” Greenberg said. “A 41.6 percent one-month fall in apartment starts is dramatic.”
In May, construction input prices increased at the fastest annual rate since the pandemic, according to analysis from the Associated General Contractors of America.
One potential bright spot: The tentative ceasefire in the Iran conflict could bring fuel costs down over time, though analysts expect any price relief to be gradual.
Shrinking, not growing
More units starting doesn’t always translate quickly to more units available. But fewer units starting absolutely does translate to less supply down the road. That math is straightforward, and it runs against anyone hoping affordability pressures ease on the supply side.
Greenberg noted that fewer homes are being built and completed than a year ago, in a country already short on housing.
“The supply of new homes reaching the market is shrinking, not growing,” he said. “For anyone trying to buy or rent, that means the affordability squeeze is not easing on the supply side any time soon. Tight supply keeps prices and rents supported.”
