Rental Construction Drops Despite Demand

By Laura KusistoFeaturesDow Jones Newswires

Development of rental apartments is driving the latest construction boom, even in places like Dallas long associated with acres of subdivisions.

But construction of such multifamily units is poised to wind down despite rising demand, raising questions whether single-family home builders will step up to fill the void. Otherwise, construction, a crucial driver of the U.S. economy might simply lose steam.

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More than half of U.S. metropolitan areas are projected to see more multifamily housing built in 2017 than the annual average from 1980 to 2016, according to an analysis by Trulia.

Developers in the Dallas area are building 84% more multifamily units this year than the historic average, but just 48% more single-family ones. Charleston, S.C. is seeing 216% more multifamily units being built than the historic average and 37% more single-family units.

Americans' changing preference for renting over owning reflects a generational shift that is taking place in all regions, said Ralph McLaughlin, chief economist at Trulia. "It's not just a few coastal metros that are built out and are only building up," he said.

The trend reflects growing demand among millennials for apartment units in the heart of major cities. Young people are renting longer, both by choice and because they are struggling to save for a down payment and qualify for a mortgage.

While demand among younger households is starting to shift back to homeownership, builders aren't ramping up single-family unit construction.

Overall U.S. housing starts declined for the fourth time in five months in July, the Commerce Department reported Wednesday. Total housing starts decreased 4.8% from the previous month to a seasonally adjusted annual rate of 1.155 million.

While starts edged 0.5% lower for single-family construction, they plummeted 17.1% for construction on buildings with five or more units. Apartment construction is tapering off because of an oversupply of units, especially at the top end of the market that is causing rents to flatten in many major cities.

"I'm optimistic that single-family will catch up," Mr. McLaughlin said. "It's not going to happen this year and it's probably not going to happen next year."

There are immediate consequences to a pullback in multifamily buildings if single-family doesn't immediately catch up. It could exacerbate a shortage of homes. While there is a surplus of luxury apartments in most major metropolitan areas, housing overall remains scarce.

Construction employment -- a major economic driver -- could pull back, although that is somewhat balanced by the fact that single-family building employs three times as many workers per unit.

Twenty-seven metropolitan areas are seeing more multifamily construction than normal but less single-family development, while just nine places are seeing less multifamily and more single-family activity than usual, according to Trulia.

Metro areas that are seeing an apartment boom and a single-family slump include some surprises, such as Detroit, Kansas City and Madison, Wis.

Write to Laura Kusisto at

(END) Dow Jones Newswires

September 12, 2017 08:14 ET (12:14 GMT)