Multifamily construction permits surged 15 percent in August, the highest monthly total since June of 2015, Marcus & Millichap reported.
The multifamily construction permits increase is directly tied to the tight vacancy situation in multifamily housing. Single-family permit filings remained relatively unchanged from previous months.
“Greater construction is warranted by extremely tight vacancy, as apartment availability in June fell below four percent for just the second time in the past 20 years. Preliminary data points to additional downward vacancy pressure in the third quarter, reiterating the housing shortage and putting upward pressure on both rents and home prices,” Marcus & Millichap said in the report.
Multifamily completions in 2022 to set 40-year record
Spearheading the rise in permits was the 53 percent annual advance in multifamily starts. Some of this activity was due to previously stalled developments that “pushed forward as the lumber price index retreated by 36 percent over the past two months,” the report said.
However, lumber costs are still high, and well above pre-pandemic levels.
“Elevated material costs and labor shortages limit the potential supply output next year, but recent permit activity and starts signal a weighty pipeline nonetheless. Early forecasts project 400,000 apartments will finalize, while the single-family addition will be the largest since 2006,” the report says.
As completions set a new record in 2022, builders will be challenged to keep up with demand and there is little concern about oversupply, the report said, as the new supply will continue to lag demand as the aging millennial cohort drives robust household formation.
“The U.S. is expected to add 1.5 million additional households next year, given there are enough residences available to support the demand amid a housing shortage. Apartment vacancy sits at a historical low, and demand for single-family homes has consistently outpaced supply, driving inventory down and pushing up prices. The influx of apartments next year is especially crucial as these will provide living options to those priced out of homeownership,” the report said.