US Housing Starts Fall to Four-Month Low on Multifamily Decline

The US housing market experienced a setback in November, with housing starts falling to a four-month low, primarily driven by a decline in multifamily housing construction. According to the Commerce Department, housing starts dropped 1.8% to a rate of 1.29 million, defying expectations of a post-election boom. This decrease was largely attributed to a 11.4% fall in multifamily housing starts, which contributed to the overall decline in housing starts.

The decline in multifamily housing starts has significant implications for the overall housing market and affordability. Multifamily housing, which includes apartments and condominiums, is a crucial component of the housing market, particularly for lower-income households and renters. The decrease in multifamily starts, from 444,000 in October to 394,000 in November, represents a 15% year-over-year drop. This reduction in supply could exacerbate affordability issues, as the demand for rental housing remains strong, driven by factors such as urbanization and demographic shifts.



The decline in multifamily housing starts can be partially attributed to changes in interest rates. As mortgage rates rose, affordability for multifamily projects decreased, leading to a slowdown in construction. According to the Congressional Budget Office (CBO), high mortgage rates restrain construction activity, which aligns with the observed decline in multifamily starts. However, pent-up demand for housing, driven by the desire for more living space during and after the pandemic, is expected to stimulate more housing starts as mortgage rates begin to fall.



The decline in multifamily housing starts has significant implications for urban rental markets and affordability. Multifamily housing is a crucial component of urban housing supply, catering to a large segment of the population, particularly young professionals and families. The decrease in new multifamily units can lead to a supply-demand imbalance, driving up rental prices and reducing affordability. According to the CBO, housing starts for multifamily units are projected to average 350,000 per year from 2025 to 2029, down from the 400,000 average in the previous decade. This reduction in supply, coupled with strong demand, could exacerbate affordability challenges in urban areas.

In conclusion, the decline in multifamily housing starts has significant implications for the overall housing market, affordability, and urban rental markets. As interest rates and mortgage availability play a crucial role in housing market dynamics, investors should closely monitor these factors and their potential impacts on housing starts and overall economic growth. The construction industry's employment and economic growth may also be affected by the decrease in housing starts, particularly in the multifamily sector.