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Home Construction Picked Up in June, Driven by Multifamily
In June, US housing starts increased by 3% to an annualized rate of 1.35 million, primarily due to a significant 19.6% rise in multifamily construction.
Jordan B. & Han-Gwon Lung
July 18, 2024
Together with
Good morning. U.S. housing starts rose in June, largely driven by a surge in multifamily construction. Plus, NYC is seriously considering mandating that landlords provide AC for tenants in the summertime.
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Market Snapshot
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Housing Starts
Home Construction Picked Up in June. Multifamily Housing Is Why.
In June, US housing starts increased by 3% to an annualized rate of 1.35 million, primarily due to a significant 19.6% rise in multifamily construction.
Single-family: Government data released Wednesday shows that single-family housing starts to fall by 2.2%, reaching an annual rate of 980,000 units. Despite this decline, single-family starts have increased by 16.1% year-to-date in 2024. High mortgage and construction loan interest rates have dampened single-family production and demand.
Building permits: Overall, residential building permits rose by 3.4% to an annualized rate of 1.45 million units in June. Single-family permits decreased by 2.3%, while multifamily permits surged by 15.6% to an annualized pace of 512,000 units. Homebuilder confidence hit a yearly low amid high mortgage rates and weak demand, prompting builders to offer incentives and cut prices.
Completions: Multifamily completions hit a seasonally adjusted annual rate of 673,000 in June, the highest since May 1986. However, the total number of units under construction decreased, with single-family homes down by 1.3% and multifamily units by 1.6%. The number of multifamily units under construction is at its lowest since August 2022.
➥ THE TAKEAWAY
Big picture: Multifamily projects are buoying the housing market, while single-family construction faces headwinds from high mortgage rates and affordability issues. Despite this, builders have a more optimistic six-month sales outlook, anticipating lower rates as inflation eases.
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✍️ Editor’s Picks
Eviction boom: Eviction rates in major Sunbelt cities like Houston, Phoenix, and Las Vegas are up as much as 35% post-pandemic, contrasting with stabler rates in other major metros.
Not again: Over 200K CenterPoint Energy customers in Houston were without power for one week after Hurricane Beryl hit, highlighting ongoing problems with the TX private electrical grid.
Global retreat: Foreign purchases of US homes hit a new record low, plummeting 36% to just 54.3K properties, with Canadians leading at 13% of all purchases.
Rate outrage: Allstate (ALL) wants to hike California homeowner insurance rates by 34%, impacting 350K+ policyholders, particularly in fire-risk areas.
REIT renaissance: Publicly traded property owners are finally seeing a rebound, with real estate stocks up 4.41% and office REITs up 9.8%.
Are we there yet? Wall Street remains unfazed as the US Treasury market absorbs even more debt, with a $1.9T deficit forecasted for 2024. Meanwhile, yields remain below 4.2%.
Unloading risk: Privately traded FS Credit REIT acquired $351.8M in loans as US banks shed lower-valued real estate tied to higher interest rates.
🏘️ MULTIFAMILY
Summer chill: NYC is seriously considering mandating landlords to provide AC for tenants in summertime, with fines of up to $1,250 per day for non-compliance.
Sky's the limit: The LA Planning Commission approved The Bora, a 153-unit apartment complex, to replace a shuttered restaurant despite a union appeal for further study.
Multifamily momentum: Multifamily absorption rates shot up in 2Q24, with 138K units absorbed and vacancies down 10 bps, as YTD absorption reaches 75%.
Campus innovations: UC San Diego is planning a $2B student housing village with 6 towers and 6K beds at 20% below market rates.
Changing hands: Interface Properties just bought Brantley Pines in Fort Myers, FL, from The Inland Real Estate Group for $57M, or around $192.6K per unit.
Shot in the foot: Biden's national rent control plan will cap increases for large landlords at 5%, potentially discouraging investment and worsening the housing crisis.
🏭 Industrial
Kansas cash flow: Ares Management and Northpoint Development secured $244M to refinance a 10-building warehouse complex in Kansas City.
Studio success story: The Burbank Studios in CA was repurchased by a group of investors for $375M from Warner Bros. Discovery (WBD), with plans for new sound stages.
Industrial boom: National industrial net absorption rates more than doubled to 46.3 MSF nationally in Q2, with rents hitting $9.97 PSF.
🏬 RETAIL
Massive mixed-use: The Reagan Center in Florida just received a major approval. The mixed-use project will include 1.4 MSF of office space, 300 KSF of retail, a 250-room hotel, and over 1K apartments.
Mall makeovers: Pacific Retail Capital Partners just invested $425M in two SoCal malls to reinvigorate 1 MSF and reposition them for new uses amid retail distress.
Retail riches: Structure Capital bought the majority of Shoppes at Monterra Commons in Cooper City for $18.5M, fully leased with diverse tenants.
🏢 OFFICE
Concessions crunch: Effective rents for office properties are 21.1% below asking rents, as struggling offices face rising operating expenses.
Debt distress: Joseph Horn, landlord of One Parkway North Boulevard in Chicago, struggled to pay off $12.7M debt last month in a distressed real estate market.
Lots of potential: Law firm Michael Best & Friedrich is moving to a 25 KSF office in downtown Salt Lake City, emphasizing the new location’s ample amenities.
Meta’s modest move: Meta (META), the parent company of Facebook, will soon downsize its Denver office from 47 KSF to 24 KSF by March.
🏨 HOSPITALITY
Mirage memories: The 3K-room Mirage in Las Vegas, which opened in 1989, is finally closing after 35 years in business. The iconic casino permanently changed the face of the Strip.
Deal of the day: Host Hotels & Resorts (HST) acquired 1 Hotel Central Park in Manhattan from Starwood (STWD) for $233.8M, or over $1M per room.
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📈 CHART OF THE DAY
According to Costar, there’s been a notable multiyear increase in the sales of properties financed by CMBS loans nearing maturity, indicating investor profit-taking amid persistently high interest rates.
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