Key Takeaways:
- Spending on residential projects is up by 27%, YOY;
- Single-family construction is the largest sub-group within residential, and at +47%, is registering the largest growth;
- The most recent total of $773 billion (annualized) is an all-time record;
- Residential’s market-share keeps growing, as non-residential sector continues to slide.
By Manuel Gutierrez, Consulting Economist to NKBA
July marks the fifth consecutive month of increases in spending for residential construction projects. Total private residential spending rose by 0.5% to an annualized total of $773 billion (Figure 1, top panel).
Except for a 0.6% decline in February, residential construction spending has increased in each of the last 14 months since June 2020. Current spending for residential projects is up 27% from last year, when it reached an annualized total of $609 billion in July.
The most recent figure of $773 billion is an all-time high. It reflects the buoyant housing and residential remodeling markets that have followed after the pandemic’s economic shutdown.
In contrast, non-residential construction has fallen steadily over the same period. The opposing paths taken by these two segments have resulted in the residential sector receiving its highest-ever share of the total private construction market — 63% (Figure 1, bottom).
Prior to last year, the residential share had consistently been at least 10 points lower, under 53%, except for a brief interlude in 2017-2018, when it was slightly above 55%.
Figure 1 also shows the trend in the three sectors comprising residential construction: single-family, multifamily and remodeling.
July residential construction expanded for the fifth consecutive month, and the 13th of the last 14.
The largest gains over the last year were in construction of new single-family houses, which rose by 47% to $416 billion. In July 2020, spending for single-family homes was $283 billion.
Although single-family has been the biggest sector within residential construction, its share had generally been less than half of total residential. For instance, a year ago it had a 47% share, but that has grown to today’s 54%.
The other two residential segments have seen less aggressive growth over the last year. Construction of multifamily housing units is up 14.9% to just under $100 billion, while spending for homeowner remodeling has increased 7.7% in the last 12 months to $258 billion.
The large increases in residential construction in the past 12 months mostly occurred in 2020, with the pace slowing considerably since then. This is particularly true for single-family homes, shown at the top of Figure 2, which registered monthly increases between 4% and 6% over the last half of 2020. Since January, construction has risen less than 2% per month, and registered just 1% growth in July.
Construction of multifamily housing units follows a similar pattern of relatively strong gains in the second half of last year, followed by a significant growth slowdown this year. The average monthly change in multifamily construction spending was 1.9% between July and December 2020. The pace dropped this year to just 0.9%, driven by declines in three of the last seven months.
Homeowner spending for remodeling projects, which reached a pace of $258 billion in July, tends to fluctuate monthly — sometimes sharply. Spending rose 0.2% in July, following a 0.7% drop the previous month. Compared with last year, as indicated above, it’s 7.7% higher.
Despite the slowdown in 2021, year-to-date residential construction spending through July is 26% higher. Single-family leads with a 38% increase to $226 billion. Meanwhile, multifamily is up 19%, to $57 billion, and homeowner remodeling is 13% higher, generating $148 billion to date.
