Rental Apartment Demand Boosts Housing Starts

U.S. housing starts rose more than expected in September on soaring demand for rental apartments, a sign that the housing market continues to steadily improve even as economic growth has slowed.

Groundbreaking increased 6.5 percent to a seasonally adjusted annual pace of 1.21 million units, the Commerce Department said on Tuesday.

It was the sixth straight month that starts remained above 1 million units, pointing to a sustainable housing recovery. Starts increased to a 1.13 million-unit rate in August.

Economists polled by Reuters had forecast groundbreaking on new homes rising to a 1.15 million-unit pace last month.

Housing is one of the few bright spots in the economy, which has been slammed by soft global demand and a strong dollar, which have undercut exports, efforts by businesses to reduce an inventory bulge and weak capital spending in the energy sector.

Economic activity has braked sharply, with third-quarter growth estimates running below a 1.5 percent annualized rate. The economy grew at a 3.9 percent rate in the second quarter.

Although residential construction accounts for less than 3 percent of gross domestic product, housing has a broader impact on the economy, with rising home prices boosting household wealth and therefore supporting consumer spending.

Starts for multi-family projects surged 18.3 percent to a 466,000 unit pace, the highest level since June. Multi-family construction is being driven by demand for rentals, especially by millennials, who cannot afford to buy their own homes because of higher prices and debt burdens.

Groundbreaking for single-family homes, the largest segment of the market, rose 0.3 percent to a 740,000 unit pace. Economists say single-family building is being constrained by land and labor shortages.

Starts in the South, where most of the home construction takes place, rose 0.6 percent to their highest level since October 2007. Groundbreaking on housing projects in the West was the highest since July 2007.

Though building permits fell 5.0 percent to a 1.10 million-unit rate last month, a six-month low, the weakness is likely to be temporary amid strong confidence levels among homebuilders.

A survey on Monday showed builders' confidence rose to a near 10-year high in October, with builders upbeat about current sales conditions and expectations over the next six months.

Single-family building permits slipped 0.3 percent last month. Multi-family building permits dropped 12.1 percent. (Reporting By Lucia Mutikani; Editing by Andrea Ricci)