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posted on 08 April 2017

What Is Driving Multifamily Home Construction?

from the Kansas Fed

-- this post authored by Jordan Rappaport

After the 2007-08 financial crisis, both multifamily and singlefamily home construction collapsed. But multifamily home construction, unlike single-family construction, has since rebounded strongly. During the first half of 2016, multifamily home starts rose to their highest level since the late 1980s. However, this recent aggregate strength varied considerably across metropolitan areas. While multifamily construction boomed in several metros, such as Austin, TX; Charlotte, NC; Nashville, TN; and Des Moines, IA; it remained weak in many others, such as San Antonio, TX; Pittsburgh, PA; Memphis, TN; and Chicago, IL.

In this article, I examine potential drivers behind the recent variation in multifamily construction and find that factors related to population, population density, and centralized employment played important roles. More specifically, I find multifamily construction was stronger in metropolitan areas that had lower average population density, one or two neighborhoods with especially high population density relative to other neighborhoods, and relatively similar population density across remaining neighborhoods. I also find that multifamily construction was stronger in metropolitan areas with larger populations and in those with employment more concentrated in the city center. These relationships appear to primarily capture differences in metros’ productivity, urban amenities, and availability of land for development.

Section I describes the variation in recent multifamily construction across metropolitan areas, including its relationship to the variation in single-family construction and population growth. Section II documents and interprets multifamily construction’s correlations with metropolitan population, population density, and centralized employment. Section III highlights how multifamily construction’s relationships with population, population density, and centralized employment differ in the city and suburban portions of metros.

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Source: files/publicat/ econrev/ econrevarchive/ 2017/ 1q17rappaport.pdf

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