Residential Construction Archives

Multifamily Housing Sector Weakens

July 26, 2017

Annual United States housing permits in 2016 experienced a slight -0.1% decline from 2015 to 2016. This overall decline is a deceleration from the 14% CAGR between 2010 and 2015. The first decline in multifamily permits since 2009 was accompanied by a low growth in single family in comparison to recent years. Annual growth for multifamily and for single family from 2015-2016 was -9% and 10% respectively, compared to a CAGR of 31% for multifamily and 14% for single family from 2010-2015.

Growth Patterns
Two important market patterns evolved in 2016. Single family growth rates varied from 2% in the Southwest to 13% in the Southeast. Overall single family experienced a 30% reduction overall from 14% CAGR from 2010-2015 to 10% in 2016. The largest single family growth was experienced in the Southeast at 13% and the West with 11% growth. The largest increase occurred in the Southeast with the number of permit units increasing from 245 thousand in 2015 to 271 thousand in 2016.

Multifamily unit construction grew from 2010–2015 with a 31% CAGR but declined at a rate of -9% in 2016. The Northeast was a major contributor to the multifamily permit decline. In the Northeast, multifamily permits dropped significantly by -49%, while single family only increased by 3% leading to an overall decline in the region.

Staying abreast of changing trends in housing permits is a critical strategic consideration for manufacturers and distributors of building materials. The recent 2016 housing permit data shows a shift in multifamily housing suggesting a potential change in terms of product mix and account targeting. Comparing 2016 growth with recent trends additionally suggests the Southeast and West regions will drive demand specifically for companies heavily focused in new single family construction. These growth rates however, indicate a slowing on the single family side as well and warrant an evaluation of the impact on your product demand.

HOUSING PERMITS SUMMARY
A summary of additional findings titled Housing Permits 2016 – Impact on Building Materials Demand is available for download.

Residential Construction: Top 10 Areas Experiencing Growth in the United States

January 6, 2017

While not quite a secret – the word is out: single family home construction continues its growth trajectory. Chief economists with the Associated Builders and Contractors (ABC), the American Institute of Architects (AIA) and the National Association of Home Builders (NAHB) in August 2016 predicted single family construction growth for the next year, as well as industry growth overall.

NAHB Chief Economist Robert Dietz explained that single family construction was increasing by more than 10 percent while multifamily production levels were slowing down. Low interest rates for home mortgages are one factor, he said, in keeping the housing market moving forward. Multifamily construction starts are down 7 percent from October 2015 to October 2016, compared with a 7 percent growth in single family units based on Principia’s view of Census data.

Principia’s analysis of Census housing permits reveals that multifamily growth is down significantly from 2015 specifically for buildings with five or more units while single family remains on an upward trend.

The largest drop in multifamily growth has occurred in the Middle Atlantic region followed by the West South Central region while single family regions experiencing the greatest growth include the East North Central, East South Central and New England regions, as shown in the table below.

Top 10 Areas for Growth – Single Family
In addition to assessing regional demand, Principia’s analysis also revealed the following top 10 states for single family growth year over year:

Florida
Georgia
North Carolina
Washington
Utah
Tennessee
Ohio
California
Idaho
South Carolina

Interestingly, the National Association of Realtors (NAR) said that demand for new homes is strong in many areas of the country – but that the number of building permits for new single family residential construction is not keeping pace. An NAR study from 2013-2015 of 171 metropolitan areas in the U.S. compared new home construction relative to job gains in these areas. The findings indicated that markets in the West make up half of the top 10 areas in need of more new single family homes. These areas are:

So, what’s driving this growth? More jobs, higher salaries, an affordable cost of living and a stronger economy. For instance, Dallas added nearly 100,000 new jobs in 2015, according to an article in Forbes online, “Building Boom Towns.

Top 10 Areas for Growth – Multifamily
Although multifamily is down overall Principia’s analysis of Census housing permits as of October 2016 reveals the following top 10 states for multifamily growth include:

Colorado
Illinois
Georgia
Arizona
Nevada
Oregon
Kentucky
Tennessee
Iowa
Kansas

FreddieMac’s Multifamily Outlook 2016 offers some insight into the lower numbers in multifamily construction. The report stated that an increasing number of renters becoming homeowners was a major factor in decline, with home ownership increasing significantly last year. One factor was deciding to buy before interest rates rose. A better economy and job growth also factored into this.

Other issues facing developers of multifamily units include affordable rent for occupants, an increase in construction costs – some report costs have increased 65 percent since 2010, fewer skilled tradesmen, and an increasing hourly construction worker wage.

Why These States?
Multiple states on both top ten lists regarding housing permits are also ranked as the top states to move into according to a yearly survey conducted by United Van Lines. These states include Florida, North Carolina, South Carolina, Washington, Nevada, Arizona and Oregon. The most popular reasons across the board according to the survey results were job changes and retirement. Forbes published a list of the Best Places to Retire and “The Best Cities for Millennials in 2016 earlier in 2016 and again several of these states make the top ten.

Market Effect
NAHB said that it’s not just the number of single family residential home constructions that is growing – but also it’s economic growth and an increase in the number of jobs. In its post on What Building 1,000 Homes Means to the U.S. Economy, it was stated “building 1,000 average single family homes generates 2,975 jobs and $111 million in taxes and fees for all levels of government.”

Multifamily housing impact on the U.S. economy is not as significant as single family as indicated in the two tables below from the NAHB:

What Does This Mean for Building Product Manufacturers, Distributors and Dealers?
The outlook is still strong for both single family and multifamily construction with single family expected to have a higher growth rate and more impact on the overall economy. Single family homes typically have unique construction amenities not found in multifamily homes. In addition to decks, oversized doors and luxury millwork, Builderonline shares some additional amenities that single home homes may include:

Floor to ceiling windows
Covered outdoor rooms
Spa-like master baths
Grand entries
Larger garages
Technology-friendly home; e.g., smart technologies

At the same time, building product demand used in single family homes versus multifamily homes within the growth areas could see a slight increase including:

Asphalt shingles
Floor tiles and solid wood flooring
Decking
Green building
Trim, both wood and PVC
Solar panels
Smart home technologies, including security systems

A recent article posted on upcoming real estate predictions stated “inventory is currently down an average of 11% in the top 100 metropolitan markets nationwide.” The article also points out that again Millennials and Baby-Boomers will drive much of the home buying activity in 2017, leading to great anticipation that 2017 will be a good year for new single family home construction.

Click on the link below to learn more about the residential construction market and how Principia can assist with identifying product demand.

Multifamily Housing Sector Growth Narrowing

July 28, 2016

Annual United States housing permits in 2015 grew a healthy 12% year-over-year, a slight deceleration from the 15% CAGR between 2010 and 2014. Multifamily growth continued to outpace single family for the nation as a whole, though this gap narrowed. Annual growth for multifamily and for single family from 2014-2015 was 18% and 9% respectively, compared to a CAGR of 27% for multifamily and 9% for single family from 2010-2014.

Growth Patterns

Several important regional patterns intensified in 2015. West and Southeast regions experienced the highest 2010-2014 single family CAGR and were also the only two regions where the single family growth rate increased in 2015. In the Northeast, multifamily permits have grown significantly faster than single family permits in recent years and 2015 was no exception with a huge 71% increase in multifamily which offset a decline in single family permits.

Several notable divergences from recent trends were also evident. The Southwest region, which was the second strongest in terms of overall growth from 2010-2014, saw a notable slowdown in 2015 and was essentially flat in both single family and multifamily units. Similarly, the Midwest region saw a slowdown in growth for both unit types. The Northeast jumped from fourth to the top spot in terms of overall permit growth, though as mentioned this was notably driven by multifamily permits. The Southeast region also picked up steam in 2015, outgrowing the Southwest and West regions and adding to its substantial national lead in terms of total annual permitted units.

Staying abreast of changing trends in housing permits is a critical strategic consideration for manufacturers and distributors of building materials. The recent 2015 housing permit data shows multifamily housing continues to grow faster than single family, suggesting a potential change in terms of product mix and account targeting. However, an evaluation of recent data highlights the gap in growth rates is narrowing and potentially becoming more regionally focused, particularly in the Northeast. Comparing 2015 growth with recent trends additionally suggests the Southeast and West regions will continue to drive demand for companies heavily focused in new single family construction, as single family growth rates picked up steam while other regions were flat.

Housing Permits Summary

A summary of additional findings titled Housing Permits – Potential Impact on Building Materials is available for download.

Pages from Housing Permits - Potential Impact on Building Material Demand

Strategic Growth Options in Residential Construction

June 14, 2016

Situation: A supplier of residential building products sought to expand sales through product line extension and geographic expansion. Client set an annual revenue goal of $100 million from new segments over a five-year period.

Approach: An evaluation of a range of opportunities was conducted with channel checks and field research through distributors, fabricators, architects and designers, and property owners. The evaluation was segmented by each of the client’s sales territories to identify regional trends and specific strengths and weaknesses. Finally, Principia recommended specific product strategies, key distribution partners, ancillary product requirements, and potential acquisition candidates.

Outcome: The client made acquisitions in two extended geographic regions and expanded product line in selected regions to drive over $75 million in growth by year three of its five-year growth plan.

Learn more about Principia’s market assessment consulting services HERE.

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Multifamily Housing Sector Weakens

Residential Construction: Top 10 Areas Experiencing Growth in the United States

Multifamily Housing Sector Growth Narrowing

Housing Permits Summary

Strategic Growth Options in Residential Construction

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