(Bloomberg)—It looks like U.S. apartment and condominium builders are reacting to rising costs and a supply glut the same way: slowing down.
Multifamily housing permits -- - those for buildings with two or more units -- dropped last month to the lowest level since March 2016, government figures showed Wednesday. That follows signs of an oversupply of apartments in some U.S. markets, but higher costs are also having an impact.
“The biggest issue is construction cost and within that, labor costs. Because of that, some deals just don’t pencil out,” Jeanette Rice, Americas head of multifamily research at brokerage CBRE Group Inc., said by phone.
There’s also an overbuilding of units in urban cores that’s suppressing rent growth, she said. Builders in previous years were able to secure easier financing from banks and the labor market wasn’t as tight, creating incentives to build, she said.
“Developers are working through all this, but it takes time,” Rice said.
The slowdown in multifamily permits was driven by declines in the Northeast and Midwest. The South saw a slight drop, while permits rose in the West.
In addition to permits, groundbreaking on apartments and condos also cooled, falling 15.2 percent to an annual pace of 330,000 units. Overall, housing starts fell in September, a drop that probably partly reflects the impact of Hurricane Florence, though rebuilding, a tight labor market and lower taxes may continue to buoy consumer demand.
--With assistance from Prashant Gopal.To contact the reporter on this story: Katia Dmitrieva in Washington at [email protected] To contact the editors responsible for this story: Scott Lanman at [email protected] Debarati Roy
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