County Level Permit Activity

June 12, 2014

The Census Bureau recently released annual estimates of building permits issued at the county level. In 2013, 1,807 counties and county equivalents saw an increase in the number of single family permits issued over the prior year while 858 saw a decrease. County equivalents include the 64 parishes in Louisiana, 16 boroughs in Alaska, and 42 independent cities.

The map below provides a visual of the change in annual permit estimates in 2013 for single family units. Counties in blue saw an increase in the number of permits issued for single family housing units while the counties in red saw a decrease in the number of permits issued for single family housing units. Counties that saw no change, no permit activity, or with insufficient data are white.

Chart_1

In 2013, 820 counties and county equivalents saw an increase in the number of multifamily permits issued over the prior year while 675 saw a decrease. One thousand four hundred and seventy-nine counties saw no multifamily permit activity in 2012 and 2013.

The map below provides a visual of the change in annual permit estimates in 2013 for multifamily units. Again, counties in blue saw an increase in the number of permits issued for multifamily housing units while the counties in red saw a decrease in the number of permits issued for single-family housing units. Counties that saw no change, no permit activity, or with insufficient data are white.

Chart_2

The issuance of housing permits is a key metric for the housing industry. The number of housing permits issued has risen in recent months and are over one million for the third consecutive month.

The Census Bureau collects data on building permits issued for new privately-owned residential housing units. The statistics are compiled through the Building Permit Survey (BPS) which is sent to permit-issuing jurisdictions. NAHB makes the most recent data available to the public for the states, the District of Columbia, and metropolitan statistical areas in the Construction Statistics section of NAHB.org.


Apartment Absorption Rates at the Start of 2014

June 9, 2014

Absorption rates for new rental and for-sale multifamily homes were roughly unchanged at the start of 2014, which is consistent with ongoing strong demand for multifamily construction.

According to NAHB analysis of data from the Census Bureau and Department of Housing and Urban Development Survey of Market Absorption of Apartments (SOMA), completions of privately financed, unsubsidized, unfurnished rental apartments in buildings with five or more units were up during 2013. A total of 132,600 such apartments were completed for these four quarters, compared to 104,500 a year earlier.

Non-seasonally adjusted three-month absorption rates (units rented after construction of the property is complete) for fourth quarter completions (rented during the first quarter of 2014) were effectively unchanged at 60% compared to 58% a year earlier. Absorption rates for rental apartments rose coming out of the recession but established a more stable range since 2011.

4q_1q14 absorp_apts

In contrast, condo and co-op completions remain at historically low levels, with 2,100 for-sale multifamily homes completed during the fourth quarter of 2013. The 3-month absorption rate for for-sale multifamily dipped for condos completed at the end of 2013 and sold during the first quarter of 2014, falling to 71%.

4q_1q14 absorp_condo

The SOMA data also reveal that for properties with five or more units approximately 15,000 Low-Income Housing Tax Credit or other federally subsidized units were completed in the fourth quarter of 2013. This is up from the 8,500 such units completed a year prior. The affordable share, LIHTC and other subsidized units, of multifamily completions was 30% for fourth quarter completions.

4q13 MF completions  by type


Strong Growth in Multifamily Construction Spending

June 2, 2014

Total private residential construction spending increased to a seasonally adjusted annual rate of $378.5 billion according to the latest Census estimates. The current reading is a slight increase of 0.1% from the revised March estimate and 17.2% higher than one year ago.

Single-family spending increased by 1.3% month-over-month while the home improvement category decreased by 2.2%. Multifamily spending posted another strong month-over-month increase of 2.7% from the revised March estimate.

Chart_1

The figures show significant improvements in residential construction spending for all categories from the prior year. From April 2013, on a 3-month moving average basis, construction spending in single-family increased by 14.6%, multifamily increased by 32.2%, and remodeling increased by 18.5%.

The growth in multifamily construction spending appears to match builder and developer sentiment about current conditions in the apartment and condominium market. The NAHB Multifamily Production Index (MPI) increased three points to 53 in the first quarter of 2014. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse. The MPI aligns with NAHB’s expectation of a 6 percent increase in multifamily starts this year.


Apartment and Condominium Market Shows Positive Growth in First Quarter

May 29, 2014

The NAHB Multifamily Production Index (MPI) increased three points to 53 in the first quarter of 2014, which is the ninth consecutive quarter with a reading of 50 or above.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.

Ex1

The MPI provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and “for-sale” units, or condominiums. The MPI component tracking builder and developer perceptions of low-rent units increased one point to 48 and for-sale units jumped eight points to 54. Meanwhile, the index tracking market-rate rental properties slipped one point to 59, but has remained consistently above 50 since the fourth quarter of 2010.

The MPI shows stable production of apartment units in 2014, which is in line with NAHB’s expectation of a 6 percent increase in multifamily starts this year.

The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, dropped one point to 37. With the MVI, lower numbers indicate fewer vacancies. The MVI improved consistently through 2010 and has been at a fairly moderate level since 2011 after peaking at 70 in the second quarter of 2009.

Ex2

Historically, the MPI and MVI have performed well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.


Average New Multifamily Home Size at the Start of 2014

May 20, 2014

After rising during the boom years and falling during the Great Recession, the average size of newly built, multifamily units remains close to levels seen a decade ago. As multifamily developers build more for-sale housing units in the years ahead, the average size of multifamily units is likely to rise.

According to fourth quarter data from the Census Bureau and NAHB analysis, the average square footage of multifamily housing construction starts was 1,182. The median was 1,023.

MF_avg size_May 14

Because the quarterly data are volatile, it is worth examining the numbers on a one-year moving average basis. For the first quarter of 2014, the one-year moving average for the multifamily size average was 1,189 square feet, while the median was 1,082. These measures are only a few percent higher than cycle lows.

However, these current metrics are very close to the typical data from the 2001-2003 period, when the average was 1,180 and the median was 1,093.

The typical size of a new multifamily unit is well below the averages/medians recorded during the boom years, when the share of for-sale multifamily was considerably higher. The share of multifamily housing starts built for-rent fell to a historical low of 47% during the third quarter of 2005. It is currently (93%) above the approximate 80% share recorded during the 1980-2002 period due to the rise in rental demand following the housing crisis.

MF built for rent_May 14

Thus, the reason for some of the recent change in multifamily average size is due to market mix. Renters tend toward smaller units than owner-occupiers. In 2012, for example, the median size of all multifamily units completed was 1,098 square feet. However, for rental apartments the median was 1,081, while it was a larger 1,466 for condos.

As the for-sale share of multifamily returns back to historical norms in the years ahead, the size of a typical newly built multifamily housing unit will rise as well.


Jobs Created in the U.S. When a Home is Built

May 2, 2014

In an article published the first day of this month, NAHB released new estimates of the impact that building single-family and multifamily homes has on the U.S. economy. The new estimates show that building an average single-family home generates 2.97 jobs, measured in full-time equivalents (enough work to keep one worker employed for a year).

A substantial share of this is employment for construction workers. But also included is employment in firms that manufacture building products, transport and sell products, and provide professional services to home builders and buyers (e.g., architects and real estate agents). A breakdown by industry is shown below, along with the wages and business profits generated in the process.Single-familyWages and profits are subject to a variety of taxes and fees. The national impacts of building an average single-family home include $74,354 in federal taxes and $36,603 in state and local fees and taxes, for a total of $110,957 in revenue for governments at all levels.

The article also shows equivalent estimates for building an average rental apartment, including 1.13 (full-time equivalent) jobs, with a breakdown by industry as shown below.MultifamilyEstimates of wages and jobs garner the most attention, but in industries like construction and real estate it can also be worthwhile to look at profits generated for business proprietors. Included in this category are many construction subcontractors and real estate brokers with relatively modest incomes, who are organized as independent contractors and therefore not technically counted as having jobs—although casual observers no doubt tend to think of them that way.

The impacts of building an average rental apartment include $28,375 in federal taxes and $14,008 in state and local fees and taxes, for a total of $42,383 in revenue for governments at all levels. For more details and assumptions used to produce the above estimates, consult the full article.

And keep in mind that these are national estimates, designed for use when the impacts on suppliers of goods and services across the country are of interest. Avoid trying to use national estimates to say something about impacts at the state or local level.  For that, keep referring to NAHB’s Local Economic Impact web page.


Tax Policy and Housing

March 12, 2014

Tax policy plays a key role in shaping housing demand, determining business conditions and deterring or fostering economic growth. Housing-related tax policy is of such significant importance that it has been selected as a primary issue for NAHB’s 2014 legislative conference, “Bringing Housing Home,” which takes place March 17-21 as home builders and other members of the residential construction industry meet federal lawmakers. As part of this event, yesterday we examined labor issues and tomorrow we will look at the future of the housing finance system.

The mortgage interest deduction (MID) is a cornerstone of housing tax policy. Deductions for mortgage interest have been permitted since the establishment of the income tax in 1913. Broadly claimed, the deduction facilitates homeownership by reducing the after-tax of purchasing a home with a mortgage. The MID also creates parity with other forms of investment for which interest expense is deductible.

MID_200K (2)

According to 2012 data from Congress:

  • The MID benefitted 34.1 million homeowning households for a total savings of $68.2 billion in that year alone
  • Two-thirds of the tax benefit was collected by households earning less than $200,000 in economic income
  • For households earning between $100,000 and $200,000 (e.g. married couple each earning $55,000), the average tax savings was more than $2,000 for just a single year

Historically more than 85% of mortgage interest paid is claimed as a deduction on Schedule A. That is, most people paying a mortgage are in fact itemizing taxpayers. And the largest benefits as a share of household income, are typically for younger households, who are paying mostly interest in the early years of a mortgage.

The rules for second homes are also critically important for homeowners who change principal residences within a tax year, traditional seasonal residence markets, and custom home construction in which the eventual homeowner takes out a construction loan. This broad use of the second home MID rules is illustrated by examining the geographic distribution of the second home housing stock.

Vacancy_cty_totals2

Public opinion polling consistently reports that homeowners and renters – prospective homebuyers – favor retaining present law rules concerning the MID and defending our nation’s commitment to homeownership. For example, a 2013 United Technologies/National Journal Congressional Connection Poll asked respondents to rate the importance of various tax rules. The results indicated that 61% of respondents said that it was ”very important” to keep the MID, with 86% of individuals saying it was either “very important” or “important.” This placed the MID second in their list, falling behind only tax preferred retirement accounts, such as 401(k)s, which scored a 63% “very important” ranking.

Recent economic research has linked the use of the MID with intergenerational income mobility. And macroeconomic modeling by the Tax Foundation found that repealing the MID to lower-income tax rates would reduce GDP growth.

Another important tax program on the rental housing side of the industry is the affordable housing credit or LIHTC. Created as part of the last major tax reform effort in 1986, the Low-Income Housing Tax Credit (LIHTC) replaced previous policies with a successful private-public partnership that ensures the development of housing for low- and moderate-income Americans. Since its inception, the program has financed the construction of more than 2.5 million affordable homes.

The LIHTC allows equity investments to be raised at lower cost, which makes the production of affordable housing possible. The LIHTC sustains 95,000 new full time jobs per year across all U.S. industries—generating $2 billion in federal tax revenue. No other housing program has been as successful as the LIHTC in producing safe, high quality, affordable rental housing. While the program has been producing approximately 75,000 new homes a year, the need for affordable housing remains strong given rent burden levels across the nation.

Rent Burden

For these reasons noted above, the future of the MID, the LIHTC, and other housing related tax provisions should be watched carefully in any future tax reform effort. A recent discussion draft of a comprehensive tax reform proposal from House Ways and Means Chairman Dave Camp would, for example, make significant changes to these and other tax rules.


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