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Spotlight on Housing Starts

To capture regional differences in demographic trends, employment opportunity, and economic growth that directly affect real estate values, HUD economists produce Regional Narratives each quarter for 10 defined regions within the United States.

If you watch or read economic commentary, you will most likely come across an economic indicator known as “housing starts.” This term refers to a statistic in the New Residential Construction Report, which is released monthly by the U.S. Census Bureau and HUD. These data are compiled by surveying homebuilders nationwide to estimate the level and rate of construction of new residential buildings.

The National Housing Market Summary, a quarterly report issued by HUD’s Office of Policy Development and Research and available through HUD User's U.S. Housing Market Conditions portal , indicated that in the second quarter of 2015, housing starts nationwide were 708,000 for single-family units and 433,000 for multifamily units (structures with 5 or more units). Adding the housing starts for 2- to 4-unit structures (14,000 units), housing starts nationwide totaled approximately 1.155 million units in the second quarter of 2015.

At 1.155 million, housing starts have picked up steam from a low of 526,000 total units in the first quarter of 2009, the depth of the Great Recession. Single-family housing starts, however, have been slow to bounce back during this period of economic recovery; at 708,000 units, the second quarter of 2015 is still well below the annual rate of 1.36 million units in 2002, before the housing bubble. By contrast, multifamily housing starts have surpassed levels seen during the housing boom of the early- to mid-2000s and are above a historic average annual rate of 360,000 units.

The rapid recovery in the multifamily sector, along with the slow growth in single-family construction, can be attributed largely to a high demand for rental housing in the period following the Great Recession. A number of factors, such as demographic trends, flat income growth, and restrictive credit markets, have caused homeownership rates to decline from a peak of 69.2 percent in the fourth quarter of 2004. In fact, the current homeownership rate of 63.7 percent is at a historic low. More households have had to turn to the rental market for housing, which helps explain the rise in multifamily construction over the past 6 years.

The slow growth in single-family starts, as well as the increased growth in multifamily construction, can be seen across various regions in the United States. For example, in the Northeast Census region, starts for single-family units in the second quarter made up 26.9 percent of total housing starts, a large decline compared with 76.9 percent of total starts in the third quarter of 2009, the beginning of the recovery. Multifamily units make up most of the remaining share of total starts, with 2- to 4-unit structures comprising a very small percentage of total starts. The Midwest and South Census regions saw single-family starts in the second quarter make up 70.1 and 71.8 percent of total housing starts, respectively, but these figures are down from 81.1 and 88.1 percent in the third quarter of 2009. The West region’s quarterly starts were more evenly distributed in the second quarter of this year, with 58.3 percent single-family starts and 41.7 percent multifamily and 2- to 4-unit starts. However, in the third quarter of 2009, single-family starts made up 87.8 percent of total starts in the West.

As these regional figures indicate, housing composition and construction growth rates vary greatly across regions. Notably, the figures in each region help show that single-family housing starts constitute a smaller portion of total housing starts than in years past, reinforcing the national data indicating that multifamily housing construction is driving a larger portion of total housing construction. For further insights into housing market and economic conditions in HUD’s regions across the country, be sure to look at the quarterly Regional Narratives, available through the U.S. Housing Market Conditions portal.

Conclusion

The housing starts indicator is important not only because it shows the pace at which housing is being constructed, but also because housing construction has spillover effects on the economy as a whole. Notably, housing construction creates many jobs, both directly and indirectly (in related industries), which can boost the entire economy. As the housing starts data show, housing market activity is on the rise, especially in the area of multifamily housing construction. Most observers believe that the housing market — particularly the single-family market — has room to grow, which would provide the U.S. economy with a tailwind going forward in the form of increased jobs, wages, and activity in various industries. Although there are always potential obstacles for the housing market, current indicators such as housing starts suggest sustained health from this point on. Interested stakeholders can stay up to date with current housing starts and other housing market indicators by visiting the U.S Housing Market Conditions portal on HUDUSER.gov.