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After a brief uptick in demand due to for-sale housing affordability challenges, apartment construction cooled off during the first half of 2019. Multifamily construction of apartments in five-plus-unit properties was down 0.2% for the first six months of 2019 compared with the start of 2018. Multifamily permit issuance for these developments was down 1%.

These changes are consistent with the NAHB forecast of a leveling off of apartment construction in 2019. They also reflect how a more dovish Federal Reserve—and lower interest rates—is having an impact on housing demand, reversing the end-of-the-year shift toward rental housing. For example, the NAHB quarterly measure of multifamily developer confidence declined to a below break-even level of 40 at the start of 2019.

Except for the end of 2018, recent trends have favored single-family housing and homeownership. From the middle of 2016 to the end of 2018, the homeownership rate increased from a post–Great Recession low of 63% to 64.6%. This gain was not a surprise given the underlying demographics, particularly a growing number of millennials entering their early 30s. NAHB analysis of Census Bureau data finds that over this two-and-a-half-year period, the number of home-owning households increased by 4.5 million, while the number of renting households declined by almost half a million.

But this marked a dramatic change from the 2010 to 2016 period when the net growth in households was firmly concentrated on the rental side of the market, both multifamily and single-family (with the vast majority of the single-family supply, due to existing owner-owned homes, shifting to the rental stock). The brief end-of-2018 shift to rental demand, in a sense, echoed this prior 2010–16 period. Due to a 10-year low in housing affordability caused by higher mortgage rates, the homeownership rate dipped for the first time in more than two years to 64.3% at the start of 2019.

Besides the own/rent decision, multifamily construction data note other post-recession changes, namely a concentration of some economic activity in large metro areas. Two decades ago, roughly 13% of new multifamily units were built in properties with 50 or more units. In 2018, that share had expanded to 61%. The so-called missing middle (for example, new multifamily apartments in properties with fewer than 10 units) declined from under 30% of units in 1998 to just 5% of apartments in 2018. And of course, more of today’s multifamily production is built-for-rent. At the start of 2019, only 6% of apartment development was intended for sale, compared with a 20% historical share.

Perhaps some of those trends are changing, albeit slightly. For instance, the NAHB Home Building Geography Index, a spatial tracking of residential construction, found that while 87% of apartment construction occurred in large metro core or suburban areas (with a population of more than 1 million) or small metro core areas at the start of 2019, these regions actually saw net declines in apartment construction over the prior four quarters. In contrast, apartment construction gains were found in exurban and rural areas, indicating that the multifamily market is not just leveling off but is, to a lesser extent, spreading out. These changes are likely to continue as housing demand pushes back to the single-family, owner-­occupied market in the quarters ahead.