Elgin Area Chamber Of Commerce: Why We Can't Just Build Our Way Out Of The Housing Crunch

Press release from the Elgin Area Chamber of Commerce:

February 15, 2022

Last year, multifamily property developers pulled construction permits for 550,400 units for complexes containing five or more units, a 24% increase over the previous year and the highest number of permits pulled for new apartments in 35 years.

Historically, rising unit permit counts in the five-or-more-units category would signal more multifamily construction in the short term. However, the pandemic has created a disconnect between the number of permits being pulled and the number of projects starting construction. Also, recent changes in the type of multifamily buildings being constructed have contributed to shifting delivery times much further into the future.

At the National Multi-Housing Council's annual meeting last month, numerous apartment developers spoke about how they wanted to increase their construction pipelines but were held back by material shortages because of pandemic supply chain disruptions. One national developer at the conference said one of his biggest fears was getting halfway into a new build only to learn the windows ordered for the project were not available and having to stop the project in its tracks.

To minimize potential disruptions in building materials, and the resulting costly delays in construction, some developers at the meeting said they are taking the unprecedented step of buying and warehousing all the materials they need before breaking ground.

These concerns over construction materials among builders are leading to more permits being pulled but not a corresponding increase in projects breaking ground. The result of this change in construction planning has increased the number of multifamily units approved but not started to a record 122,000.

Despite strong demand from renters, and developers eager to build more apartments, the number of multifamily units under construction has remained stable over the past two years. Units under construction actually declined by 26,000 in 2021, finishing the year at 695,000. This despite the uptick in permits recorded last year and further underscoring the impact material shortages are having on housing projects moving from the planning and permitting stage to under construction.

The situation is compounded by the longer construction times associated with the higher-density mid- and high-rise buildings that account for the majority of new apartment projects being built today. Before the mid-2000s, new multifamily developments were mostly garden-style apartments with construction timelines ranging from 12 to 18 months, depending on the location.

This began to change in the period leading up to the Great Recession, when infill locations closer to employment centers in both urban and suburban areas became favored by renters. Garden-style units fell out of favor, and new construction focused almost entirely on mid- and high-rise developments.

Today, these types of buildings account for the majority of new apartment construction. However, they can take double to triple the amount of time to build compared to garden-style properties.

As a result, comparing current apartment construction levels to earlier periods when units were being added at a much faster rate can be misleading. While the overall number of apartment units under construction remains at near-record highs, the actual impact of having more available units to rent is being spread out over a longer period, ranging from one to three years. That's why, even with 695,000 units under construction, the delivery forecast for 2022 sits at just 400,000 units for the entire year.

The combination of material shortages and longer construction times makes it all the more difficult to build our way out of the current housing crunch. It is simply taking longer for developers to expand the stock of available housing to meet the increased demand for apartments.

Source: www.CoStar.com

This press release was produced by the Elgin Area Chamber of Commerce. The views expressed here are the author’s own.