Multifamily builders are breaking ground in the South

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With so many homes for sale and so few buyers, you’d be crazy to build a new house in this market, right?

Nevertheless, multifamily and single-family home building has been heating up in pockets across the nation, causing more than a few people to scratch their heads, reports Southeast Construction.

Nationally, construction permits, starts and completions are still a fraction of what they were in the mid-2000s boom and low even compared to the more normal pre-boom levels of the ’90s and early 2000s.

But after falling precipitously through 2009, declines in construction permitting – a leading indicator of future construction activity – have leveled off in some areas. The trend line has even reversed direction in some places. New activity is taking hold in Texas, the mid-South and the mountain states, according to real estate information website Trulia.

But why are builders breaking ground in some regions and staying on the sidelines in others?

or one, many of the regions now seeing glimmers of new construction activity experienced relatively mild recessions. Thanks to a strong energy industry, Texas emerged from the Great Recession relatively unscathed. Houston is nearly back to normal construction permitting activity, according to Trulia, as are Dallas, San Antonio and Omaha, Neb. In essence, metro areas that had fairly light recessions have less ground to make up during the recovery.

Also, Texas, like many other regions with new construction activity, has a fast-growing population, which ultimately puts pressure on housing supply. Indeed, the best predictor of construction permitting activity is population growth, says Trulia chief economist Jed Kolko, and Raleigh, N.C., and Austin, Texas – some of the regions with the highest permitting activity – were among the fastest-growing metro areas over the past 10 years.

“Builders build where they expect the population to grow,” Kolko said. More people means more demand for housing, multifamily or single-family.

To be sure, there are other parts of the country with fast-growing populations, such as California and parts of the Southwest, but those regions were much harder hit by the twin scourges of overbuilding and severe price declines. “There’s now less demand for new construction in those places even though they were fast growing,” Kolko said.

The supply side also plays a role. “What you’re going to start to see is construction activity pick up in parts of the country where, although we have an excess supply of homes nationally, we don’t in that location,” said Stan Humphries, chief economist at real estate site Zillow. “The fact that we have vacant inventory is a national phenomenon, (but) we don’t have vacant inventory in certain markets, which means new construction is going to pick up in some of these markets.”

However, it’s important to distinguish between multifamily and single-family new construction. Multifamily constructions tend to outpace single-family projects in more densely populated cities, such as Dallas and San Antonio, where demand for rental properties coupled with rising rents has shifted builders’ focus to multifamily projects.

Lower-density areas like those in the Carolinas have seen more activity in the single-family home space – multifamily projects make up just 8 percent of permits in Charleston and only 5 percent in Raleigh – because renters make up a smaller portion of residents.

The nascent reawakening of the construction sector in some parts of the country bodes well for the local economy and the jobs outlook too. Construction jobs account for as much as 5.5 percent of all U.S. jobs.

While most experts don’t expect the industry to recover to pre-recession conditions, new construction means more demand, which means building firms will likely be hiring. That in turn could translate into even more demand for housing – and new construction – as workers’ incomes get a boost.  Read More.

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