The Trend Is Clear Multifamily Construction on the Rise

Housing starts dropped in September below the historical average of 1.5 million homes as both single-family home construction and multifamily apartment building slowed down. Nevertheless, the number of housing units under construction rose to 1.7 million units for the first time ever. While construction delays and supply constraints have lengthened the under-construction time, the record high number of units under construction is also attributable to the rise of the apartment buildings. Data shows that there are more multifamily than single-family units under construction. Specifically, in September, 893,000 units in buildings with five units or more compared to 800,000 single-family units were under construction. Meanwhile, it’s worth noting that the number of single-family units under construction has decreased for the last four straight months. On the other hand, the number of multifamily units under construction has increased for nearly the last couple of years. Thus, the completion of these units could help with rent increases.

In addition, even more apartment buildings have begun construction. Although multifamily housing starts eased in September, the U.S. is building about 50% more than the pre-pandemic historical average. Nevertheless, our country continues to underbuild single-family homes. Yet the number of single-family housing starts is 13% below the pre-pandemic historical average. Thus, multifamily construction has made impressive gains during the last couple of years. While people are buying homes faster than they can be built, builders are turning to structures that can accommodate more people under one roof.

In the meantime, high construction costs are reported to be one of the biggest hurdles for builders. However, building multifamily homes may help offset some of these costs. In microeconomics, this is primarily due to economies of scale. For instance, most subcontractors may offer a discount when they do one big project instead of two small ones. Moreover, the cost of the lot may also be relatively smaller. Buying a larger lot to build a multifamily home may be less expensive than buying two lots. Additionally, by building ten units on a one-quarter of an acre lot as opposed to one unit, you could economize on the land cost.