Multifamily residential looks to hold its own

Although single-family home construction contracted a bit last year, the multifamily residential market was able to eke out a small gain. Even with a slowing economy during 2001, the multifamily sector still should successfully avoid a downturn-although growth won't be strong enough to offset the continued weakening in the dominant single-family market.

A third-of-a-million multifamily housing units were started in 2000-roughly the same number as over the past several years. Although final numbers were not in at press time, multifamily starts last year look to be up a slight 0.6 percent from the 1999 level. Current dollar spending to construct last year's 334,000 multifamily units was about $27.5 billion, or 0.8 percent more than during 1999.

The multifamily sector took November 2000 total housing starts for both single-family and multifamily to a seasonally adjusted annualized level of 1.6 million units, a surprisingly solid 2.2 percent increase from the October total.

Single-family starts last November were 9 percent below the rate of November 1999. Starts in multifamily buildings, on the other hand, were markedly improved over the month, rising to an annualized rate of 342,000 units during November. This was up 13 percent from October's pace. November 2000's multifamily starts annualized total was a solid 7 percent higher than the 319,000-unit annual rate recorded during November 1999.

Total starts through the first 11 months of 2000 were estimated at 1,491,300 units, a modest 3.8 percent drop from the total for that period in 1999. Through November 2000, single-family starts had faded to a level 5.2 percent below the total for the first 11 months of 1999, but the number of units started in multifamily buildings was up a slight 1.7 percent from the total recorded during January through November 1999.

Multifamily permit trends were highly variable across the nation during 2000, however, so some states continued to add significantly to their existing stock of apartments and condominium units.

Rental vacancy rates remained relatively low nationwide right into the fall of 2000, and this should help support a reasonable level of new construction in the multifamily sector during the year ahead. Permit growth trends correlate closely with the degree of tightness in local apartment markets. In the Northeast, where the regional rental vacancy rate is under 6 percent, permit growth was strong in New York (up 40 percent between 1999 and 10 months of 2000), New Jersey (up 17.6 percent) and Pennsylvania (up 9.7 percent). Other markets that saw multifamily permit volume soar include Colorado (up 83.0 percent), Georgia (up 49.7 percent), Minnesota (up 22.0 percent) and Massachusetts (up 20.1 percent).

Rental vacancy rates (Percent of rental units available)

Source: U.S. Department of Commerce