Rental-unit demand boosts construction starts, permits

Demand for rental units provided a boost to construction of multifamily housing in November, but modest gains in single-family-home starts and building permits were not enough to rescue that category from what will likely be its worst year on record.

On Tuesday, the Census Bureau reported that housing starts rose 9.3 percent in November, the biggest increase in 19 months, but the number of single-family houses started rose just 2.3 percent. Multifamily starts, primarily rental apartments, rose 23.5 percent.

Single-family building permits fared worse, growing just 1.6 percent, compared with 13.9 percent for multifamily housing.

Still, housing economist Patrick Newport, of IHS Global Insight Inc., of Lexington, Mass., was cheered a bit by the single-family numbers. The market, he said, seemed to be "finally getting up off the mat."

Permits, not starts, are the factor economists take to heart, because they are much better measured, are less affected by weather, and are forward-looking.

Multifamily permits are at their highest level since October 2008. Rents are rising, vacancy rates are falling, and the economy continues to create enough jobs to sustain a modest recovery.

Rates of homeownership are falling, as well.

Strength in the multifamily market comes from an inability to buy homes, so more Americans are renting, said economist Joel L. Naroff, of Naroff Economic Advisors in Holland, Bucks County. Changing demographics, with many baby boomers now looking for condos, also are contributing, he said.

"Those factors slow the single-family sales but are a consequence - not the driving force - for the slow construction rebound" in the for-sale market, Naroff said.

In the Philadelphia region, "a relatively strong recovery in apartment performance continues to unfold," said analysts with real estate investment-services firm Marcus & Millichap. Although only 100 new rental units will have been brought to the market by the end of 2011, projects totaling 1,100 units will be completed in 2012, the analysts said.

The number of multifamily permits issued in the region spiked in this year's second quarter to one of the highest levels in two years.

The bumper crop of lower-cost distressed housing nationally is actually doing more to depress single-family construction than any other factor, observers said.