July Multifamily Permits Show Similar Growth Trend Seen Each Month This Year

Posted on August 27, 2012

The U.S. Census Bureau posted its July residential permitting numbers by metropolitan statistical area (MSA) on Friday, August 24, 2012. Privately-owned housing units authorized by building permit in July were 812,000 (SAAR), up 6.8% from the revised June rate of 760,000 and 29.5% above the July 2011 estimate of 627,000. Annual multifamily (MF) permits increased by 45.3% at the national level during July 2012 from the comparable period a year ago. The June MF permit number of 228,723 marks nine consecutive months of annual permitting above 200,000 levels as developers and investors gear up to take advantage of the strong apartment market fundamentals despite slower than expected job growth. We are expecting these permits to turn into completions by mid-to-late 2013, with completions peaking during 2014 at the historical average during this cycle.

Despite the structural issues surrounding employment growth, the apartment market’s fundamentals remain strong though the growth rate has moderated compared to 2011. For the nation, annual effective rent growth in July stood at 3.65% while year-to-date rent growth through July was 4.34% and occupancy was 94.3%, which was unchanged from May. Furthermore, though new supply is picking up compared to last year for most MSAs, new supply remains well below historical levels. As stated earlier, we are expecting new supply deliveries to meet historical levels for most MSAs by the latter half of 2014. We expect an increase in the downside risk of a stagnant apartment market in the second half of this year due to slower than expected job growth rather than the slight increase in supply.

The top ten MSAs for MF permitting for the trailing twelve months ending July 2012 are: Dallas (11,406 units), New York (11,403 units), Houston (10,791 units), Los Angeles (8,896 units), Austin (7,907 units), Washington, DC (7,050 units), Seattle (6,225 units), Denver (5,222 units), Atlanta (4,619 units), and San Jose (4,128 units). The bulk of the supply is being delivered into the urban core of these markets, though we are also seeing new supply gearing up in the suburbs of some of the MSAs. Some of the top MF permitting places on a trailing twelve-month basis through July 2012 are the City of Houston (7,483 units), Los Angeles City (6,528 units), the City of Dallas (5,576 units), the City of Austin (5,107 units), Seattle (4,880 units), the City of Washington, DC (3,710 units), and San Antonio (3,241 units).