During the Great Recession of 2007–09, housing—particularly single-family home building—was at the epicenter of economic distress. Loose underwriting and investor speculation led to a surplus of homes that resulted in home price declines, underwater borrowers, and a sharp reduction in home building. As the post-stimulus recovery took hold in 2010, it was multifamily construction that led the way, as rental housing demand expanded and the homeownership rate continued a decline that finally ended in 2016.

The COVID-19 public health crisis—and the government-imposed policies adopted to fight it—have brought on a shorter, sharper recession in 2020. Because this downturn was not generated by financial or economic excesses, as is typical for the business cycle, its impacts are considerably different. (As an aside, we must evaluate whether recent public health policies were effective and scaled appropriately, particularly a moving of the goalposts for economic reopening from “flatten the curve” to “reduce cases to a negligible count,” but that will be done in the future with better data.)

The COVID-19 recession is centered in those parts of the economy that require density (a concentration of people grouped close together) that social distancing and shutdowns have limited. For the real estate industry, this means travel, tourism, retail, and other parts of the service sector are particularly weakened. Moreover, for residential real estate, high-density sectors have experienced declining demand. In particular, properties that require using an elevator or have tight common spaces are seeing rising vacancy rates and softening rents and property values.

This marks a significant reversal of the impacts from the Great Recession. For this downturn, multifamily construction will be more strongly affected, both in terms of volume and location of development. And it will be apartment development that will lag in terms of recovery back to an average sustainable rate of construction (as single-family construction lagged in recovery over the past decade). Remodeling will weather this particular storm better than other parts of the home building sector given the recent focus on home as a refuge during a public health crisis.

While multifamily is currently the relative weak leg of home building, it is the broader commercial and nonresidential sector that is the true epicenter of decline for the overall construction industry. According to the NAHB long-term forecast, while the dollar volume of residential construction spending will surpass its prior peak (from the start of 2020) within two years, it will take at least four or maybe five years for nonresidential construction to reach the pace it achieved at the start of 2020.

The wild card for the nonresidential sector would be a large federal infrastructure effort. If a bipartisan agreement can be reached on an infrastructure bill focusing on nonresidential development, it could have spillover benefits for housing. However, if such legislation achieves momentum, it will be critical for funding to be made available for construction worker recruitment and training, as well as making sure building material access is improved so residential and nonresidential construction can grow.