A multifamily housing project under construction, reflecting the challenges in the current market.
The multifamily housing market is experiencing significant difficulties, with completions for apartments down nearly 40% year-over-year. While construction starts for new projects increased, total units under construction have declined. Building permits for multifamily developments saw a rise, but rising costs and community concerns present obstacles. In Anchorage, ambitious goals for new residential units and policy changes aim to boost housing, but slow progress and increased density raise local concerns.
The landscape for multifamily housing continues to shift as completions significantly dropped by nearly 40% year-over-year. In terms of annualized rates, the construction of multifamily apartments has fallen to 383,000 units, which also marks a 21% decrease from the previous month. This trend has raised concerns about the ongoing viability of multifamily construction projects amidst a changing market.
Amid the declining completion statistics, multifamily construction starts have seen a positive uptick, with reported figures of 414,000 units for June on a seasonally adjusted annualized basis. This represents a remarkable 30.6% increase compared to the prior month, hinting at a potential for future growth. However, a closer inspection shows that the actual number of multifamily units currently under construction has reached 720,000, a 19.6% decrease year-over-year and a slight 0.6% drop month-over-month.
In contrasting data, the number of multifamily building permits issued for larger units—those comprising five or more—has been encouraging. In June, 478,000 permits were issued, indicating an 8.1% rise from May and a 2.1% increase year-over-year. However, the Census data suggests a diminishing trend regarding new deliveries in buildings of this size, raising questions about the sustainability of the market.
The landscape has also seen equity investors beginning to favor existing properties over new developments. The influx of new supply has led to some markets presenting new properties below replacement costs, challenging the attractiveness of fresh projects. Approximately $2 billion in multifamily construction and condominium loans have been successfully closed by various entities as of summer 2023, showcasing a steady flow of capital into the sector.
Diversity in multifamily construction types indicates varying financial viability, particularly between garden apartments and mid-rise or high-rise options. The potential for profitability generally tends to skew in favor of garden apartments, which may influence future construction decision-making. Facing ongoing challenges such as elevated construction costs and labor shortages—especially in remote areas like Alaska—has further hindered the growth of both multifamily and single-family housing.
In Anchorage, a new public-private partnership aims to provide 2,700 student beds across two residence halls slated for completion by 2027. The city has seen a notable increase in residential construction, issuing permits for 146 residential units during the first half of the year, a substantial uptick from just 79 issued for the entirety of last year. Projects like the Raspberry Townhomes are moving forward, benefiting from new tax incentives and design rule suspensions aimed at accelerating development.
Mayor Suzanne LaFrance has set an ambitious goal of adding 1,000 new and rehabilitated residential units annually over the next decade, employing various municipal measures to loosen development regulations. These regulations include a three-year pause on certain city design requirements for larger multifamily housing. A proposed tax break ordinance will offer a 20-year exemption for projects with eight or more units, exempting land taxes, which strives to encourage additional construction.
While these initiatives aim to alleviate housing shortages, critics note potential downsides, including a loss of neighborhood character due to the growing housing density. For instance, design moratoriums have been implemented for the Baxter housing project in Anchorage, helping cut down on time and costs in construction, thus aligning with the city’s strategy for addressing housing demand.
A broader review of the nation’s multifamily housing scene indicates that nationwide permits for multifamily housing experienced a slight uptick, ending a trend of declining totals. Overall, this suggests that while challenges persist, there are signs of stabilization in the multifamily housing market.
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