Slight drop-off forecast for multifamily housing starts

Orlando — Multifamily housing starts are expected to slightly moderate this year and in 2019 while production levels are forecast to remain stable in a range considered normal, according to the National Association of Home Builders.

"For the foreseeable future, production of multifamily housing is expected to be running at a trend level where supply is meeting demand," NAHB senior economist Michael Neal said during a presentation at the International Builders' Show in Orlando.

Multifamily starts are expected to dip 2% this year to 354,000 units from a projected 360,000 total in 2017 and fall another 3% to 344,000 in 2019.

However, this does not mean the market is weak.

"From 1995 through 2005, multifamily starts averaged 335,000," Neal said. "Construction activity during the past four years has been running above this trend, and we are seeing the market stabilizing near more normal production levels."

Contributing to the stabilization of multifamily activity is low inventory of homes on the market. "Fewer homes for sale means that some renter households looking to own will have to rent for longer than they may anticipate," Neal explained.

Meanwhile, the national rental vacancy rate registered a slight uptick last year, but stands at its low mid-1990s level of 7.5%.

Steven E. Lawson, president of The Lawson Companies in Virginia Beach, Va., whose firm builds both affordable and market-rate housing, addressed the predicted increasing demand for affordable rentals as a growing number of households are rent burdened, meaning they are paying too much of their income in rent.

"Demand is far outstripping supply and the supply-side of the equation is constrained by Low-Income Housing Tax Credit pricing, rising construction costs and higher interest rates," Lawson said.

While the new tax reform law has significantly lowered corporate tax rates, it has also reduced tax credit prices, Lawson said.

"Rising labor and materials costs as well as falling prices for Low-Income Housing Tax Credits have changed the landscape so that some projected affordable projects are no longer viable," Lawson said. "Moreover, labor shortages are driving up labor costs and spreading out construction schedules."

On the plus side, the newly enacted pro-growth tax law is expected to mean lower tax rates for most individuals in all income groups, which will put more money into the pockets families, including renter households.