Multifamily construction spending is up 15.8 percent for the first six months of 2012 over the same period last year, according to Reed Construction Data.
Starts are up, too, with a total of 269,000 units for the year predicted by the National Association of Home Builders. This is welcome news after multifamily construction hit record lows in the last half of 2009 and early 2010.
About 500,000 starts were reported in 2005, so the industry is still way down from top production. Top metro markets for multifamily construction are New York, Washington, D.C., Los Angeles, Miami and Boston.
In the second quarter of 2012, the vacancy rate index was at 36, the same as 2011 but far better than 2009, which had a high of 70, reported the National Association of Home Builders.
The index is based on high and low vacancy rates. Overall vacancy rates have improved in 2012 to 8.6 percent from 9.4 percent in 2011, U.S. Census data show, although buildings with five or more units are still at 9.4 percent.
Regionally, vacancy rates were highest in the South (11 percent) and Midwest (9.1 percent). Vacancy rates were more favorable in the West (6.2 percent) and Northeast (6.7 percent).
One factor sure to affect future construction activity is pent-up demand. With the lingering recession, people are living with relatives or roommates far longer than usual.
The usual rate of new household formation from children leaving home, divorce, college graduations and other life changes is 1.2 percent, the National Association of Real Estate Trusts reports. During the past several years, this rate has dropped to 0.5 percent, resulting in pent-up demand of two million units. With an estimated 500,000 shortfall in constructed units, the total is 2.5 million.
Helping boost the industry is support from the government-sponsored enterprise Fannie Mae. Fannie Mae issued $22.3 billion in mortgage-backed securities between January and August this year for the multifamily market. This has encouraged banks to lend, and with interest rates remaining below 4 percent, demand for loans has been strong.
Multifamily housing supported by low-income tax credits and other subsidies accounts for about 30 percent of projects.