Housing completions have surpassed housing starts. History suggests bad things follow. But what’s happening this time?
I picked up the idea for this post from Jay Parsons. Thanks Jay!
Comments From Parsons
Year-to-date in 2024, U.S. multifamily completions are outpacing new starts at the widest levels since 1975. The gap will likely widen further. Completions are at multi-decade highs while starts continue to rapidly plunge due to several headwinds: high rates, flat-to-falling rents for lease-ups (depending on the market), and construction costs often coming in above replacement value.
Simply put: It’s very difficult to start new unsubsidized apartment projects right now. Folks on this app often don’t realize that developers do not self-fund their own projects. They have to raise equity and debt, and that is very challenging right now for reasons mentioned above.
So while supply will continue to exceed demand in 2024, keeping downward pressure on rents, you can see how (assuming the job market stays healthy) demand could exceed supply again by 2025, which would in turn put upward pressure on rents.
Cheap debt helped fuel the multifamily construction boom, which in turn tamed rental inflation; and expensive debt is helping tame the multifamily construction boom, which could fuel renewed rent inflation.
My chart differs from his in that Jay compared the first four months to the same four months in prior years whereas I averaged full years except for 2024 which is a year-to-date average.
Since the numbers are seasonally adjusted, the ideas are essentially the same.
Supply vs Demand
One thing I slightly disagree with Jay on is that it’s overall supply vs demand not just multi-family.
For example, someone who was a renter but then buys a house, frees up a rental unit. So all completions matter, not just multi-family.
Starts Minus Completions
Whether it’s all completions or just multi-family that matters the most, it doesn’t look very good either way.
And I still wonder where we are going to house millions of illegal aliens and at what price.
Housing Starts, Permits, Completions
For discussion, please see Housing Starts Rise 5.7 Percent Following Negative 2.6 Percent Revision
Starts and permits took a huge dive since late 2021 and early 2022 until January 2023. Since then it’s bee meaningless random month-to-month fluctuations.
Completions bottomed in September of 2021 at 1,226 and are now at 1,623. Expect this trend to continue for a while. It will help the rent situation, but there are upward pressures as well.
CPI Up 0.3 Percent With Rent Still Rising Steeply, Food a Bright Spot
Rent rose another 0.4 percent in April. Food and beverages were flat with food at home declining but food away from home rising.
For discussion, please see CPI Up 0.3 Percent With Rent Still Rising Steeply, Food a Bright Spot
Most leases renew in May through August. I expect rent to moderate soon.
Retail Sales Fall Flat
Caution. Every time I suggested consumers may throw in the towel, it didn’t happen. Counter caution, real (inflation-adjusted) spending is negative year-over year for 12 out of the last 17 months.
For discussion, please see Retail Sales Fall Flat, Are Consumers About to Throw in the Towel?
There are plenty of signs of weakness, but we have seen that on and off for several years. Does Biden or the Fed have another rabbit in the magic hat?
Simply put: It’s very difficult to start new unsubsidized apartment projects right now. Folks on this app often don’t realize that developers do not self-fund their own projects. They have to raise equity and debt, and that is very challenging right now for reasons mentioned above. So while supply will continue to exceed demand in 2024, keeping downward pressure on rents, you can see how (assuming the job market stays healthy) demand could exceed supply again by 2025, which would in turn put.