The Apartment Construction Boom

Garden apartments in Seattle

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Economic recoveries are normally led by construction booms, and while single-family home-building remains in the doldrums there’s growing evidence that a boom in construction of multi-family units is well under way. Karl Smith has the chart based on census data showing that “5 unit or more starts are up 16% from last month and up 80% year over year.”

Something important to note about this is that “the economy” is all about rates rather than levels. The United States in 2011 is much richer than it was in 1998 but slow growth leaves us with high joblessness, stagnating incomes, and a generally bad feeling. By the same token, a very rapid increase in the rate of homebuilding portends growth, even if that’s a rapid increase from a low level.

Now why is multifamily booming in particular? Some of this is probabaly a change in preferences, but some of it must reflect changes in credit conditions. It’s obviously possible to rent a single-family home (I’ve done it) and it’s possible to own in a big building (I do it now) but in general multi-family is more rental friendly and single-family is more ownership friendly. Greater reluctance to loan to people with impaired credit implies more reliance on rental housing which implies more construction of multi-family homes. In general, I try to avoid Now More Than Ever policy recommends which imply that the best path to giving the economy the short-term boost it needs is identical to my preferred strategy for long-term growth, but I do make an exception for this. Across huge swathes of the United States, the ability of developers to construct multi-family units is severely curtailed by zoning rules. This a harmful to the environment and the economy in general, but it’s a particular problem at a time when construction is slumping and credit conditions suggest that we really need a bunch of rental apartments.