The U.S. Could Build a Lot More Apartments
Developers are putting up new apartment buildings in the U.S. as fast as they were before the real estate crisis. Yeah, there was a decline in multi-family construction in October, probably because of flooding in the South. But overall the picture from the Census Bureau's monthly building permits data has been one of growth.
By contrast, building permits for single-family homes, while they too have been on the rise, are still only at about 40 percent of the peak they hit in September 2005.
It's almost certainly a good thing that apartment construction has recovered more strongly than house construction. Many younger Americans prefer city living. If they can afford it, that is. High housing prices have become a major problem in resurgent big cities such as New York, Los Angeles and San Francisco. These places need more apartment buildings, probably lots more.
Here's something you may not know. U.S. developers used to put up apartment buildings at a much faster pace than they're doing now. Not a decade ago, when single-family house construction hit its all-time peak, but decades ago.
This is true even in states that have grown a lot since the 1970s and 1980s. Here's the chart for Texas, for example:
And here's California:
Both these states had apartment-building booms in the 1980s that were in part the result of newly deregulated financial institutions going a bit nuts. The aftermath included the savings and loans crisis and several years of almost no new apartment construction. So that's probably something we don't want to relive. But California in particular just isn't seeing much apartment construction by historical standards, despite widespread agreement that the state could really use more multifamily housing.
Same with New York:
Note that the totals for New York are much lower than for Texas and California. Apartment construction in New York City probably peaked well before 1960. The city's population barely grew from 1950 to 1970, and fell 10 percent in the 1970s. It's growing again now, yet apartment-building is still way below where it was in the 1960s and early 1970s. These are permits for privately owned housing -- so public-housing construction isn't reflected in the charts.
What's going on? It's partly just that, in aftermath of a historic financial crisis, it still isn't easy to get financing to build new apartment buildings. It's also partly because there's less land left to build on in and around the most popular cities. But the main reason is likely that, over the past few decades, U.S. cities and suburbs have enacted increasingly strict zoning and land-use regulations. And as Jason Furman, the chairman of the White House Council of Economic Advisers, put it in a speech earlier this month, "multifamily housing units are the form of housing supply that is most often the target of regulation."
This country used to build lots and lots of apartments. Here's hoping it can relearn how to do it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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