Time is money: How long it takes to build an apartment
Multifamily Construction Takes 17.5 Months
In this week’s issue, we explore the impact of construction delays on multifamily.
Main Takeaway: There are a record number of multifamily buildings under construction, partly due to a number of headwinds that are causing significant delays in completions. These include regulatory requirements, high material costs, permit delays, and more. Expect this to ease as material prices come down and borrowing costs increase.
Story:?Time is money, and nowhere is that more true than in the apartment construction industry. New?data ?from NAHB sheds light on the new reality of building in our sector, showing that it takes an average of 17.5 months to build an apartment in the U.S.
Source:?NAHB
And this varies by region, with the Northeast showing the longest time at 19.8 months, while the Midwest had the shortest with 15.3 months. In addition, the number of units in the apartment plays a significant factor with 20+ unit buildings needing the most time at 19.2 months compared with 2-4 unit buildings which took the least amount of time at 14.2 months.
Causes of Apartment Construction Delays
New research from?NMHC ?sheds further light on the delays in construction, reporting that almost all developers (97%) reported some form of delays in construction. Of those, 83% said that the delays were due to permits.
The same survey?found ?that the percentage of apartment builders who said they delayed new starts because the projects were “no longer economically feasible” jumped to 38%, a 20% year-over-year increase. Indeed, we?reported recently ?that 40% of all development costs can be attributed to the regulatory requirements imposed on builders by governments.?
According to Doug Bibby, NMHC President, “[r]ising costs, construction delays and labor shortages—never mind more regulatory barriers and rampant NIMBYism—are making it more and more difficult to build the housing our country so badly needs…Former President Obama had it right when he recently said that laws and regulations at the local level are inhibiting the creation of affordable housing. Policymakers need to partner with the private sector to bring down costs and find real solutions.”
Multifamily Starts Rising
In addition to the rising time to completion, over the past decade, multifamily housing construction has picked up substantially, according to?St. Louis Federal Reserve ?with 568,000 starts of 5+ unit buildings, up from 189,000 in 2012.
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Source:?FRED
The above delays and regulatory pressures on apartment builders are exactly the reason for this elevated level of apartments under construction. There are so many because they are more difficult than ever to get to the finish line.?
Fed Signals Apartment Construction to Slow
That said, a new?report ?out of the Fed also signals that construction has already started to slow across the country as building permit applications have dropped and demand for construction workers has eased. Further, multifamily lending has tightened, and prices for lumber and steel are moderating signaling an easing of demand.
Expert Take:?
“Delays in completing construction projects is one of the most common problems of the construction industry, and has a detrimental effect on all triple-bottom lines of sustainability (i.e., social, environmental, and financial). Considering the numerous negative consequences of construction activities, particularly for the environment, efforts should be taken to minimize the duration of the construction phase and the risk of delays.” —?Mohammadsoroush Tafazzoli, Washington State University
“The delays come at a time when the multifamily pipeline is the busiest it’s been in nearly four decades: there are 824K units in the development pipeline; deliveries of 450K multifamily units were scheduled for this year.” —?Jack Rogers, Globe St.
Multifamily Construction Resources
Chart: Rents
According to new data from?Yardi Matrix , the average asking rent increased by $19 in June 2022, setting a new all-time record high of $1,706. That said, YoY growth has decelerated to 13.7%.