March 26, 2017

Apartment Construction Soars in January 2011

During January, residential construction increased 14.6%, according to housing statistics [.pdf] released today from the Census Bureau and Housing Department. This is the greatest monthly rise in residential construction since May 2009 or in twenty months. Though, this monthly surge in residential construction was not due to the construction of new homes, but was instead due to the construction of new apartment buildings.

In fact, apartment construction soared 80% in January, while home construction actually declined 1%. Further, apartment construction in January was 82% higher than January 2010, whereas home construction in January was 19% lower than January 2010. Clearly, developers expect an increased demand in apartments and a decreased demand in homes. This expectation likely involves the combination of an aging population and the weak economy.

Overall, there were only 50,000 housing starts during January, which is 2.6% below January 2010. The fact that residential construction could sharply rise 14.6% and still lag behind the previous year shows how the latter half of 2010 was a particularly bleak time for the housing market. Regardless of the relatively weak housing market, the monthly rise in home construction means more people were put back to work in January and is at least a good sign.

The amount of building permits issued during January, however, was not so good. Building permits declined 10.4% in January. The amount of building permits issued during a month generally indicates residential construction for the next month. For instance, building permits increased 16.7% in December 2010, which followed with a sharp rise in construction during January. With the decline in permits during January, residential construction will likely decline in February.

In order for the housing market to fully recover, several factors must consistently improve, including: foreclosure filings, home sales, home prices, credit lending, and of course unemployment. Among these key factors, though, positive signs have recently been inconsistent.

The National Home Builders Association confirms an inconsistent housing market with the results of its monthly survey released yesterday. The NHBA has been conducting a monthly survey for the past twenty years of home builders to determine whether builders view the housing market as good or poor for the next six months. A rate above fifty signals good conditions, while anything below fifty signals poor conditions. The survey released yesterday showed a poor rate of sixteen, which is the fourth consecutive month with this rate. This clearly shows unstable expectations for the housing market.

A resurgence in the housing market requires much more than a monthly surge in apartment construction. The unemployment rate has been 9% or higher for 21 consecutive months. As long as the unemployment rate is elevated, prospective home buyers, as well as other housing statistics, will remain inconsistent.


  1. Nicely written article. I have one slight disagreement with it though. I suggest that that a recovery in the housing market (price stability and number of sales) will precede any significant increases in new home starts. The problem with housing is that for years construction rates exceeded the rates of new persons that could truly afford a mortgage. The reason being: under the sub-prime loan practice these over produced homes consistently found buyers from individuals that could never repay the loans they used to buy the homes (borrowers sought to sell the homes for a profit when the bill became unmanageable and the banks that gave the loans “dumbed” them by selling as mortgaged-back-securities, to Fannie and Freddy, as C.D.O.s etc.). My point being that new hosing permits and starts will be a later reaction “to” a housing turnaround, not a causal factor “in” the turnaround.
    The issue is an oversupply of houses and lack of people that can both afford a home and wish to buy one. The current unemployment/underemployment rate is a contributing factor to the problem, but even with demand spurred by economic growth it will take years for the market to clear the current supply of houses. To build on this article, the increase of rental properties will undoubtedly have a negative effect on housing prices as the availability of more rentals properties means lower rent. Thus making owning a home relatively more expensive.

    Keep up the great reporting,
    – JLed

    • In terms of the overall housing market, I agree that housing starts and issued permits are more so indicators how of things are doing, not where things are going. Good catch – I’ll make a change.

      Also, you raise two good points about the housing market. The oversupply of homes, or the “shadow market,” is deeply problematic for the housing recovery, especially home values. I’ve read estimates of several years for how long it could take for all of these homes to enter the market. In effect, even if the unemployment rate improved, the growth of housing demand would still not equal the growth of supply.

      Second, the growing trend of renting is another important consideration. Perhaps this also has a role in the January surge of apartment construction. Though, if this trend were to continue and home ownership indeed becomes more expensive, the cost to rent will also rise. In fact, I’ve seen data indicating rent is becoming more expensive. However, the risk involved with home ownership may continue to increase the demand for rent even when the cost to rent is going up.

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