Between single-family homes and rental apartments, the United States still doesn’t have enough housing to adequately meet demand. To better meet housing needs, however, decisionmakers need to understand the different challenges facing these two markets. At last week’s Housing Finance Policy Center data talk “Tale of Two Markets: Single-Family versus Multifamily Construction,” a panel of experts gathered to talk about both markets.
Labor, laws, and land constraining single-family building
Paul Emrath from the National Association of Home Builders explained that labor and land shortages and regulatory constraints have driven up the cost of single-family home construction and slowed production. And as the median lot price continues to increase, lot sizes are smaller than ever.
How much of the rising costs can be attributed to government regulation? A National Association of Home Builders survey revealed that 14.6 percent of final home price is attributable to regulation during the development phase, while 9.7 percent of final home price is attributable to regulatory costs during construction. In aggregate, 24.3 percent of the final sales price of a new home is attributable to regulation.
National Association of Home Builders and Census Bureau data show that from 2011 to 2016, the growth in average regulatory costs (29.8 percent) outpaced income growth (14.4 percent). These high building costs make it nearly impossible to construct affordable homes, leaving the 31 percent of the homebuying market who expects to pay less than $150,000 with few options.
An active multifamily market
Greg Willett from RealPage Inc. explained that, for many reasons, demand for apartments has been high, and that multifamily completions are finally beginning to catch up. The level of new multifamily building depends on the region, with high activity in select metros such as San Francisco, California, and Greenville, South Carolina. In general, the urban core is seeing annual average inventory growth near 5 percent, more than twice the average inventory growth in the suburbs. At the same time, new construction in the multifamily market has also catered to wealthier renters in cities, as regulatory and construction costs have strained development of lower cost properties.
Jamie Woodwell from the Mortgage Bankers Association summarized housing development in the postcrisis world, noting the differences in the historic pace of single-family and multifamily building in four US regions. He also shared the Mortgage Bankers Association’s predictions that vacancy rates will increase for single-family and steadily decrease in the multifamily market. Demand in the multifamily market remains strong despite high average rent growth. Strong demand could be explained by demographic and lifestyle changes, including changes in the age of the population and the racial makeup of households and incomes.
While the single-family and multifamily markets are performing at different levels and face different obstacles, earlier research from the Housing Finance Policy Center shows that both markets are still leaving us with far fewer total housing units than we need, particularly at affordable levels. Policymakers must recognize and address the different challenges in both markets to adequately house the nation.