Key Takeaways:
- Drop is due to 5% decline in multifamily units, as single-family remained unchanged
- Ongoing material and labor shortages are main reason for recent lower trend in starts
- The 835,000 starts in the South represent over half of all housing starts for the month
By Manuel Gutierrez, Consulting Economist to NKBA
Housing starts fell 1.6% in September to an annual rate of nearly 1.6 million units. Additionally, the Department of Commerce revised downward the estimate of August housing starts to 1.58 million homes, off 35,000 from the previous estimate of 1.62 million houses. The culprit? The drop in new housing construction, particularly multifamily, which reverses August’s gains.
Multifamily construction declined 5% to 475,000 units. The single-family portion was unchanged. Multifamily represents less than a third of new housing construction. In September, it was 31% of the total.
The larger of the two segments, single-family starts, remained steady at 1.08 million units. The stability in September starts follows two months of declines. Note in Figure 1 that single-family construction has generally been on a downward pace since December, when starts were running at a rate of 1.32 million homes.
Single-family housing starts, at 1.08 million units, are well behind the pace of 1.32 million units registered at the end of last year.
Housing demand remains strong, but it is builders’ inability to build more homes — mainly due to ongoing material and labor shortages, as well as an extreme shortage of lots — that are behind the declines. These shortages, as have been widely reported, are not easing any time soon. Even Secretary of Transportation Pete Buttigieg has noted that the supply-chain issues the nation is confronting today are likely to continue into 2022.
On a regional basis, residential construction patterns were not consistent. Housing starts in the Northeast and the South fell in September, while it rose in the Midwest and West (Figure 2).
The largest change, and in fact the biggest drop, was in the Northeast, where starts fell by 27% to just 120,000 units. It should be noted, though, that changes of this magnitude are not unusual for this region. The relatively low volume of housing construction, combined with a large percentage of those homes being multifamily units, result in sharp changes in the number built from month to month.
Housing starts fell 6% in the South. This region generates the most housing construction, typically accounting for more than half of the nation’s starts. In September, the South’s 835,000 starts represented 54% of the U.S. total.
Of the two regions with rising starts, the West leads with a 19% increase over August to a 383,000 total, while housing starts in the Midwest, the second-smallest in terms of residential construction, rose 7% to 217,000 units.
The top two charts in Figure 2, the Northeast and Midwest, show that housing starts in September were only marginally different from their corresponding levels a year ago. The solid blue lines capture the underlying trend.
Charts:
