News Summary
The multifamily housing market is experiencing significant difficulties, with completions for apartments down nearly 40% year-over-year. While construction starts for new projects increased, total units under construction have declined. Building permits for multifamily developments saw a rise, but rising costs and community concerns present obstacles. In Anchorage, ambitious goals for new residential units and policy changes aim to boost housing, but slow progress and increased density raise local concerns.
Drop in Multifamily Housing Completions Signals Ongoing Challenges in Construction
The multifamily housing market is experiencing significant challenges as completions dropped nearly 40% year-over-year (YOY), with the annualized rate plummeting to 383,000 units. This figure reflects a 21% decline month-over-month, highlighting concerns regarding the pace of new housing availability in the market.
Despite this sharp decrease in completions, multifamily construction starts saw an impressive leap in June, reported at 414,000 units annually when adjusted for seasonal variations. This increase marks a substantial 30.6% growth compared to May, suggesting that while overall completions are down, new projects are commencing at a faster clip.
Construction Underway and Building Permits Rise
As of the end of June, there were approximately 720,000 multifamily units currently under construction, showing a 19.6% decrease YOY and a slight 0.6% drop month-over-month. This reflects the ongoing trend of partial stagnation in the sector, particularly concerning unit completions.
On a more positive note, the pace of building permits for multifamily units with five or more is picking up, with June experiencing an issuance of 478,000 permits. This marks an 8.1% increase from May and a 2.1% rise YOY, indicating a potential shift towards new approvals as market conditions comparatively stabilize.
New Trends in the Multifamily Market
The Census data indicates that the volume of new deliveries in multifamily buildings is declining, leading equity investors to perceive existing properties as increasingly attractive options. In many markets, some new developments are even being offered below replacement costs. This trend is shifting interest towards profitability, particularly as different multifamily structures have distinct financial feasibility, with garden apartments proving more profitable than mid-rise and high-rise constructions.
In Anchorage, the housing market is seeing a revitalization due to a new public-private partnership bringing 2,700 student beds across two residence halls expected to open by 2027. The city has issued permits for 146 residential units in the first half of this year, a substantial increase from 79 units for the entirety of the previous year.
Efforts to Accelerate Housing Development
Key projects like the Raspberry Townhomes in Anchorage are gaining momentum thanks to new tax breaks and the suspension of certain design rules. The local government aims to construct and rehabilitate 1,000 new residential units annually for the next decade. By allowing developers to bypass specific design processes, projects are anticipated to progress faster and at reduced costs.
The Anchorage Assembly has also made moves to ease development rules, implementing a three-year pause on particular city design requirements for larger multifamily housing. A proposed ordinance offers a 20-year tax exemption for projects consisting of eight or more units, excluding land taxes, to encourage continued growth and investment.
Concerns Over Density and Affordability
While the push for increased housing density is prevalent, there are concerns among critics regarding the potential loss of neighborhood character. For instance, the Baxter housing project in Anchorage has benefited from expedited processes due to design moratoriums, allowing construction to commence this summer.
The current block of multifamily projects in the area includes both affordable and market-rate options. However, builders face ongoing challenges such as high material costs and labor shortages, constraining the expansion of multifamily and single-family construction in several regions across the country. Over the last two decades, these rising costs, especially in remote areas like Alaska, have severely limited the construction of market-rate apartments.
Looking Forward in Multifamily Housing
Despite the current challenges and fluctuations in construction and completion rates, nationwide data indicates that the three-month weighted moving average for multifamily housing permit issuance has been on the rise since February, hinting at potential stabilization in the housing market. As of July, overall residential building permits for multifamily units reached a total of 263, ending a once downward trend of permit totals.
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Additional Resources
- Anchorage Daily News: Tax Break Design Moratorium
- Wikipedia: Multifamily Housing
- Yield Pro: Multifamily Starts Recover
- Encyclopedia Britannica: Housing
- MortgageOrb: Housing Starts Increased
- Google Search: Multifamily Housing News
- Business Record: WDM Council Approves Site Plan
- Google Scholar: Multifamily Housing Trends
- Scotsman Guide: Multifamily Construction Surge
- Google News: Multifamily Housing Development
