What will the new construction marketplace look like in 2016?
The Census Bureau released its latest report on new construction this morning, and as usual, the agency’s analysis had far-reaching implications on where the new construction markets are heading in the coming months.
Here were the four main takeaways from the report:
1. A Strong Year for Starts –Last year was a strong one for new construction, and that activity bodes well for the 2016 market. According to the Census Bureau, there were more than 1.11 million housing units started in 2015, a 10.8 percent increase over 2014. Multifamily starts, meanwhile, were even stronger, rising 12.5 percent over last year.
2. Permits Point to the Future – Further evidence of new construction’s strength came in building permits, which directly point to future construction activity. In 2015, there were nearly 1.2 million permits issued, a 12 percent increase over 2014.
More of that growth, though, came in the multifamily sector – while single-family permits rose 7.9 percent in 2015, multifamily permits were up 19.4 percent; and considering that multifamily projects typically require 12 to 18 months for completion, we can expect many more multifamily projects over the next year.
3. A Multifamily World – Those building permit numbers drive home what had been a recurring theme of our new construction coverage in 2015, that being the growing prominence of multifamily housing. Consider this chart from economist Jed Kolko, which analyzes the market share of multifamily in housing starts:
Since 2010, multifamily construction has skyrocketed, and in 2015, it comprised 35 percent of all housing starts – the highest level since 1973.
The trend is similar for completions, which the Census Bureau uses to track new construction units that hit the market. In 2015, single-family completions rose 4.5 percent, compared to a 20.6 percent uptick for multifamily; last year, multifamily completions comprised nearly 32 percent of the market, up from 22.5 percent in 2010.
4. Rental Construction – As strong as multifamily construction has been, very few of those new units are intended for the condo market. According to more detailed numbers from the Census Bureau, 93.4 percent of multifamily construction in 2015 was intended for the rental market, up from 57.7 percent in 2005. So new construction, in other words, has shifted in a major way from homeownership to renting, and that trend is likely to continue in 2016.