Multifamily Construction Paces Surge in Housing Starts

Residential construction opened the year with a mixed signal: more shovels in the ground, but fewer projects entering the pipeline.

Privately owned housing starts rose to a seasonally adjusted annual rate of 1.49 million units in January, up 7.2 percent from December and 9.5 percent higher than a year earlier, according to newly released federal housing data from the Census Bureau. The gain was largely driven by multifamily construction, an increasingly important supply lever as affordability pressures weigh on homebuyers.

Permits, a forward-looking gauge of development activity, moved in the opposite direction. Authorizations for new housing units fell to an annualized rate of 1.38 million in January, down 5.4 percent from December and 5.8 percent compared with last January. The drop suggests developers may be slowing their pipeline after a volatile year shaped by high borrowing costs and uncertain demand.

The split between single-family and multifamily construction continues to define the market.

Single-family starts fell 2.8 percent month-over-month to a rate of 935,000 units, while single-family permits slipped slightly to 873,000, down 0.9 percent from December. Builders have been cautious about ramping up detached home construction as mortgage rates remain elevated and affordability constraints keep many buyers sidelined.

“With home values expected to remain somewhat flat, the combination of higher costs and increased competition from resale inventory is keeping many builders on the sidelines,” said Zillow senior economist Orphe Divounguy.

Multifamily development, by contrast, powered much of January’s construction activity. Starts for buildings with five units or more climbed to a 524,000 annual pace, while permits for the same category reached 453,000 units. Rental projects have dominated the development pipeline over the past several years as institutional capital flowed into apartments during the pandemic-era housing shortage.

Completions also ticked higher. Housing completions reached a seasonally adjusted annual rate of 1.53 million in January, up 4.8 percent from December. But that figure was still 7.5 percent lower than the same period a year earlier, suggesting the wave of projects that began construction during the pandemic building boom is gradually tapering off.

Single-family completions edged down slightly to 970,000 units, while multifamily completions came in at 532,000.