A multifamily housing project under construction, reflecting the challenges in the current market.
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.
The apartment construction sector is experiencing notable setbacks, with completions for multifamily apartments dropping nearly 40% year-over-year, reaching an annualized rate of just 383,000 units. This alarming decline also reflects a 21% reduction month-over-month. Despite a promising surge in construction starts in June, many industry experts are concerned about the overall health of the multifamily housing market.
In a contrasting trend, multifamily construction starts soared in June, reported at 414,000 units on a seasonally adjusted annualized basis. This marks an impressive 30.6% increase compared to the prior month, hinting at a potential recovery in some areas of the sector. However, this increase in starts comes at a time when the overall development landscape appears to be faltering.
As of the end of June, there were 720,000 multifamily units under construction, reflecting a 19.6% year-over-year decline and a slight 0.6% decrease month-over-month. The reduction in ongoing projects indicates an industry grappling with significant roadblocks, as builders face persistent issues such as rising labor costs, high material prices, and an overall labor shortage. These challenges have particularly affected the viability of market-rate apartment construction, especially in remote areas like Alaska, over the last two decades.
June saw an increasing trend in the issuance of multifamily building permits, with 478,000 permits granted for units with five or more, marking an 8.1% increase from May and a 2.1% yearly rise. Despite these positive figures, the ongoing decrease in new deliveries suggests that these permits may not result in immediate construction activity.
As new supply floods the market, equity investors are turning their attention to existing properties, finding them more enticing amid a surplus that has led to products being offered below replacement costs. This shift highlights how market dynamics can change rapidly and how investors are adapting to the current landscape.
In places like Anchorage, significant initiatives are underway to boost residential construction. This includes a new public-private partnership expected to deliver 2,700 student beds across two residence halls by 2027. The municipality has seen a rise in permits for 146 residential units in the first half of the year alone—more than double the 79 permits issued throughout all of last year. Special tax breaks and relaxed design requirements are helping facilitate projects like Raspberry Townhomes, which aim to provide a mix of affordable and market-rate housing.
Local authorities, such as the Anchorage Assembly, have been taking action to promote residential development, instituting measures like a three-year moratorium on specific city design requirements for larger multifamily housing projects. A proposed ordinance offering a 20-year tax exemption for projects with eight or more units, excluding land taxes, has also been suggested to incentivize growth. However, this rapid expansion raises concerns among some community members regarding the potential impact on neighborhood character due to increased housing density.
While the multifamily housing market reflects signs of stabilization, the three-month weighted moving average for permit issuance has shown an upward trend since February. In July alone, the total number of residential building permits for multifamily units reached 263, marking a halt to the previously declining trend. Nevertheless, builders remain vigilant, as ongoing economic challenges could continue to shape the multifamily construction landscape in the months and years to come.
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