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Real Estate

Apartment Nation: Trend to Multi-Family Housing Continues

Partially completed townhouses are seen under construction at the Lexington Park development in Des Plaines, Illinois

Photograph by Tim Boyle/Bloomberg

Partially completed townhouses are seen under construction at the Lexington Park development in Des Plaines, Illinois

The U.S. is a long way from Germany, where only 42 percent of families are homeowners. But construction of multi-family units is growing faster than construction of single-family homes—a trend confirmed today by the Census Bureau’s monthly report on residential construction.

One reason for the boom in multi-family construction is that rents have risen, making new rental projects more attractive to investors. Obviously rents can’t get too high or people will be turned off. In fact, a recent Bloomberg News Chart of the Day said that the financial advantage of owning over renting is the biggest in at least two decades.

On the other hand, it’s hard to qualify for a mortgage. Plus, multi-family units tend to be smaller and cheaper than single-family homes, which is an asset for people who are scaling back. They also tend to be rented, rather than owned. The six-year-long crash in home prices has taken the bloom off the “ownership society” pushed by Republicans and Democrats alike: Renting doesn’t look as foolish as it did in the days when house prices were rising 10 percent a year or more.

True, multi-family units aren’t all rentals; some are condominiums. Conversely, not all single-family homes are owner-occupied; some are rented out. But those are the exceptions. America’s trend toward rental living is confirmed by U.S. Census Bureau data showing that in the fourth quarter of 2011, the home ownership rate was 66 percent—down from a peak of about 69 percent in 2004-06.

Today’s report showed a 60 percent increase over the past year, through February, in construction permits for units in structures with five or more living units. That compares to a still-healthy 24 percent increase in construction permits for single-family homes. Two-thirds of permits issued were for single-family homes.

Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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