An environment of higher rates and building costs stacked with burdensome regulations has stunted the construction of new homes in this country.
Single-family building permits dropped to their lowest level in close to a year this May, decreasing 2.9% to a 949,000 unit rate, according to the U.S. Department of Housing and Urban Development (HUD) and the Census Bureau. Overall housing starts fell 5.5% in May to a seasonally adjusted rate of 1.28 million units, and single-family starts alone decreased 5.2%.
Single-family starts are still up significantly year over year, at 18.8% in May 2024 over May 2023, on a seasonally adjusted basis. The multifamily sector declined 6.6%, marking the lowest pace for apartment construction since April 2020.
“Overall lower housing production corresponds with our latest industry surveys, which show builders are concerned with a high interest environment that is making it harder to get acquisition, development and construction loans to increase home building activity,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan. “Higher rates for builder and developer loans, along with ongoing supply-side challenges regarding construction labor and buildable lots, are acting as headwinds for new home and apartment construction.”
On the demand side, mortgage rates averaged 7.06% in May per Freddie Mac, the highest reading since November 2023.
“It is not just the single-family market that is experiencing challenges. The three-month moving average for multifamily starts is the lowest since the fall of 2013 as the multifamily development deceleration continues,” said NAHB Chief Economist Robert Dietz.
On a regional and year-to-date basis, combined single-family and multifamily starts are 22.2% lower in the Northeast, 8% lower in the Midwest, 2.3% lower in the South and 2.6% higher in the West. Overall permits decreased 3.8% to a 1.39-million-unit annualized rate in May.
Close to 1,000 members of the residential construction industry lobbied on Capitol Hill this June, urging Congress to help ease the country’s housing affordability crisis so more homes can be built. Earlier this year, the NAHB released a 10-point plan to address the nation’s estimated 1.5 million shortage in housing units, by removing barriers that hinder new home construction.
