Slowdown noted in multifamily construction as lenders tighten credit, oversight

By David Pendered

The once white-hot construction market for multifamily residences in the Southeast is showing signs of cooling, according to builders cited in the Beige Book released Wednesday by the Federal Reserve’s Atlanta District. Lenders report they are increasing their oversight of loans for multifamily projects.

Midtown, CBRE

With prices exceeding $2.60 per foot, some renters evidently have decided that balcony chairs, tables, potted plants and other outdoor furniture aren’t a part of their lifestyle. File/Credit: Kelly Jordan

Developers tend to keep a positive outlook and they didn’t throw a big bucket of water on the current construction cycle. But they told Federal Reserve analysts:

  • “While most reports indicated that the pace of multifamily construction matched or exceeded the year-ago level, a growing share of contacts reported that multifamily construction is down. Looking forward, the majority of District commercial construction contacts expect nonresidential construction activity to increase in the second quarter, while expectations for the pace of multifamily construction was mixed.”

The banking and finance sector reported closer scrutiny of the multifamily industry:

  • “Lenders increased oversight of construction loans and were growing more cautious in multi-family lending.”

This came against a backdrop of continuing restrictions on credit and a trend toward refinancing:

  • “Credit remained readily available for most qualified borrowers, although some small businesses continued to experience difficulty obtaining loans. Contacts noted that regulatory capital requirements constrained commercial and construction lending at some banks, and most commercial lending activity revolved around refinancing.”

This cooling multifamily sector in the Atlanta District is arriving just as the single-family sector continues to improve, or at least hold its own.

Residential developers reported their activity is up from the same period in 2016. The number of potential buyers who tour homes is up as well, according to builders and brokers.

Here’s how the Beige Book characterized their anecdotal reports:

  • “Most builders noted that construction activity was up from the year-ago level. Many brokers and builders reported an increase in home sales relative to one year earlier. The majority of builder and broker contacts said buyer traffic was up from the previous year’s level.”
MLK housing

The renovation of existing structures in the Martin Luther King Jr. Historic District continues to add value to the neighborhood. Credit: David Pendered

Residential contacts noted that inventory levels were unchanged or down compared to the year-ago level:

  • “Both builders and brokers indicated modest gains in home prices. Home sales expectations were positive, with most brokers and builders anticipating sales will increase slightly over the next three months relative to the year-earlier level. Most builders expect construction activity to hold steady at the current pace or increase slightly over the next three months.”

But the slowdown in multifamily construction in the Atlanta District isn’t nearly as bad as other regions, including New York: “New starts of single-family homes have remained subdued, while new multi-family construction has slowed substantially.”

The other districts reported their housing sector as follows.

In the Richmond District: “Multifamily building continued at moderate levels; however a few lenders noted that fewer new developments were being approved for financing.”

In the Chicago District: “Residential building rose moderately, led by growth in the single-family segment. … Contacts in the Chicago area believed that the market was cooling some, while a contact in West Michigan indicated that the market was the strongest it has been for some time.”

In the St. Louis District: “Residential real estate activity has declined modestly since the previous report. … Residential construction improved modestly since the previous report.”

In the Minneapolis District: “Strong multifamily housing development continued in many District markets.”

In the Kansas City District: “Sales of low- and medium-priced homes outpaced sales of higher-priced homes.”

In the Dallas District: “Financing for new multifamily properties remained difficult to obtain.”

In the San Francisco District: “Supply shortages and strong demand continued to fuel rapid home price growth in most parts of the District; contacts in urban centers reported that bids routinely came in significantly above the asking prices.”

 

 

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

1 reply
  1. mike dobbins says:

    Pendered’s recent posts shine a bright light on a number of fundamental issues that face Atlanta’s future, further heightening the stakes in the upcoming city elections. Finally, the inequities borne of the growing wealth divide and income inequity are rising into view. The idea of a “city for all” replacing years of policies and programs for a “city for some” is sprouting up. The city can choose now whether to do something about this inequity or to remain at the bottom of the Gini Index, which measures the wealth gap, with the least opportunity for young people in the bottom 20 per cent of incomes to rise above that circumstance.

    His reporting is illuminating. The Council is once again, and more forcefully, calling the BeltLine to account. People forget that the BeltLine depends on pumping up property values, thus taxes, to finance itself. So it has no motive to deliver on promises and commitments made to the low wealth neighborhoods whose inclusion in the Tax Allocation District was required in order to qualify. Instead it has become an alternate city within the city, a well-heeled PR juggernaut that politicians have been timid about challenging but may now pay more attention.

    His reporting on Dan Immergluck’s analyses of the BeltLine’s negative impact on housing affordability and displacement confirms the fact. Pendered cites the laudable work of the Regional Housing Forum, the Transformation Alliance and Immergluck’s sensible proposals for doing something about it. His reporting on Councilman Bond’s reviving the idea of using Enterprise Zones tax abatement as an inducement to housing development that requires affordability is notable. (Regrettably, this might be coming too late). His reporting on the distant storm clouds over rental housing activity presages uncertainties that cyclically afflict the development industry, now radically and unpredictably magnified by onrushing shifts in federal policies and programs.

    I look for more information-rich investigative reporting from Pendered and encourage Saporta Report’s readers to pay attention.Report

    Reply

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