Homebuilders built fewer single-family homes in June. But they’re betting on the rental market to continue its red-hot streak, ramping up construction of apartments, according to one economist.
In June, construction of single-family homes fell by 8.1% from the previous month, according to the Commerce Department, but construction of multi-family homes rose by 15%.
“Rising rents are creating an incentive to build more rental units, even in the face of rising financing costs,” Aneta Markowska, chief economist at Jeffries, said in a note on Tuesday.
The rise in construction of apartments “cushioned the blow” of the sharp decline in single-family starts, Markowska said.
Median rent nationally is up 14% year-over-year, according to Redfin, and occupancy rates are at low levels, “which is creating an incentive to build more units,” she added.
Cincinnati, Ohio leads the pack when it comes to rent increases: Asking rents rose 39% year-over-year in the city, which was the largest jump among the 50 biggest metro areas in America.
Seattle, Austin, Nashville, and New York City followed.
Given rental demand is strong, expect multi-family construction to soften but still remain relatively resilient, Doug Duncan, chief economist at Fannie Mae, said in a statement.
“Many would-be homebuyers will likely continue to seek rental options in light of higher mortgage rates diminishing homebuyer affordability,” Duncan added, which “should help support multifamily construction.”
But rents have fallen in certain cities: Rents fell by 12% in June in Milwaukee, 7% in Minneapolis, and less than 1% in Kansas City, Missouri.
Minneapolis eliminated single-family zoning in 2018 and also got rid of a rule that required developers to include parking spaces. That lets them build more housing units, Redfin’s Daryl Fairweather said, which increases supply.
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