Multifamily Housing Developments Face Major Challenges

News Summary

The multifamily housing market is experiencing significant difficulties, with completions for apartments down nearly 40% year-over-year. While construction starts for new projects increased, total units under construction have declined. Building permits for multifamily developments saw a rise, but rising costs and community concerns present obstacles. In Anchorage, ambitious goals for new residential units and policy changes aim to boost housing, but slow progress and increased density raise local concerns.

Multifamily Housing Developments Encounter Significant Challenges

The multifamily housing market is facing troubling times, as new data indicates a steep decline in completions over the past year. Completions for multifamily apartments have plunged nearly 40% year-over-year, hitting an annualized rate of 383,000 units. This decline was further compounded by a 21% drop in completions compared to the previous month.

Mixed Signals in New Construction

Despite the decline in completions, multifamily construction starts experienced a noteworthy increase in June, rising to 414,000 units on a seasonally adjusted annualized basis. This reflects a significant 30.6% rise from the previous month, suggesting a potential rebound in new projects even as completions stagnate. However, the total number of multifamily units under construction stood at 720,000 at the end of June, marking a 19.6% year-over-year decrease and a 0.6% decline compared to May.

Building Permits on the Rise

In June, the number of multifamily building permits issued for developments with five or more units reached 478,000. This represents an 8.1% increase from May and a 2.1% rise year-over-year. However, as new deliveries in these buildings begin to decline, equity investors are increasingly looking at existing properties, driven by the influx of new supply and in many markets, lower costs than the expense to build new developments.

Financing and Financial Feasibility

Financing remains a crucial element in the multifamily sector. As of summer 2023, approximately $2 billion in multifamily construction and condominium loans have been finalized by financing institutions. The financial feasibility of various multifamily structures diverges significantly; garden apartments typically prove to be more lucrative compared to mid-rise and high-rise constructions.

Challenges in Specific Markets

One noteworthy development is occurring in Anchorage, where a public-private partnership is working to add 2,700 student beds across two new residence halls, anticipated to open by 2027. In the first half of this year alone, Anchorage issued permits for 146 residential units, a marked increase from the 79 units permitted throughout the entire previous year. Progress in Anchorage has also included developments like the Raspberry Townhomes, which are moving forward due to recent tax breaks and the suspension of certain design rules.

Government Initiatives to Boost Housing

Anchorage’s Mayor has set an ambitious goal of constructing 1,000 new and rehabilitated residential units annually over the next decade. The Raspberry Townhomes project allows developers to bypass some design-review processes, streamlining progress and reducing costs.

Additionally, the Anchorage Assembly has introduced policy changes to ease development restrictions, such as a three-year pause on specific design requirements for larger multifamily housing projects. Under a proposed tax break ordinance, any project with eight or more units could receive a 20-year exemption from land taxes.

Community Concerns and Rising Costs

However, not all feedback has been positive. Some community members have expressed concerns regarding potential losses in neighborhood character stemming from increased housing density prompted by new developments. Rising construction costs, particularly in remote regions like Alaska, have restricted the construction of market-rate apartments for the past two decades. Moreover, builders continue to grapple with high material costs and labor shortages, which are affecting both multifamily and single-family construction projects across various areas.

Signs of Market Stabilization

Despite these challenges, the nationwide three-month weighted moving average of multifamily housing permit issuance has been trending upward since February, indicating some signs of stabilization in the market. As of July, the total for overall residential building permits for multifamily units reached 263, marking a halt to the trend of declining permit totals.

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Additional Resources

• Anchorage Daily News: Tax Break Design Moratorium
• Wikipedia: Multifamily Housing
• Yield Pro: Multifamily Starts Recover
• Encyclopedia Britannica: Housing
• MortgageOrb: Housing Starts Increased
• Google Search: Multifamily Housing News
• Business Record: WDM Council Approves Site Plan
• Google Scholar: Multifamily Housing Trends
• Scotsman Guide: Multifamily Construction Surge
• Google News: Multifamily Housing Development