Report Cites Obstacles To Multifamily Development
The most significant barrier new multifamily development faces is the rising cost of construction, reported Colliers International, Toronto.
Colliers’ What Obstacles are Looming Over Multifamily Development? report called a shortage of skilled labor the biggest factor increasing multifamily construction costs. “[Labor] is, by far, the biggest line item of any construction expense,” the report said. “Because of this lack of skilled labor, construction has slowed dramatically and thus made it more expensive.”
The Labor Department reported construction employees’ average hourly earnings rose 3.9 percent in the 12 months prior to October 2018, the fastest pace in nearly 10 years.
“At the same time, land owners, especially in urban and desirable suburban locations, continue to increase land prices, seizing on the increased demand for multifamily housing,” Colliers said. “And, because contractors are having a more difficult time earning a profit, they are raising their prices to offset increases, but can’t seem to raise them fast enough.” The report noted the producer price index (a weighted average of all goods and services used in construction) rose 0.6 percent in October following a 0.2 percent gain in September, bringing the 12-month total increase to 6.6 percent.
The National Association of Home Builders reported multifamily construction spending increased 3.1 percent in December to a new record high $65.2 billion annual pace. NAHB’s Multifamily Production Index dropped one point to 47 compared to the previous quarter, indicating builder and developer sentiment about current conditions slipped in late 2018. The MPI remained below 50 for the second half of 2018.
The Multifamily Production Index weighs three key multifamily housing market elements: market-rate rental units, apartments supported by low-income housing tax credits or other government subsidies and for-sale condominiums. All three components fell below 50 on a 100-point scale in the fourth quarter.
“We saw a big drop in the component for low-rent starts, even though that is the segment of the market where demand tends to be the strongest,” said Steve Lawson, President of The Lawson Cos., Virginia Beach, Va. “Rising construction costs and difficulty with getting projects approved have made building particularly challenging in some parts of the country.”
“The MPI is down a point and under 50 for the second straight quarter, indicating a slight weakening for multifamily developer sentiment,” NAHB Chief Economist Robert Dietz said. He predicted multifamily starts will level off later this year then edge down slightly from last year’s production.
