Today’s housing report says definitively that the summertime rush of residential building is winding down.
Construction normally picks up in summer, in part because summer weather makes construction easier to do. It picked up in a big way this summer as builders finally got financing for their new projects, buildings that were drawn up more than a year ago. But once these new apartment buildings are complete, builders and bankers will not be rushing to get new projects started.
Part of the problem is that apartment vacancy rates are rising in most areas, even as more people move into apartments after foreclosures drive them out of their houses. People typically rent apartments to be near their jobs, and with employment continuing to decline, the need for apartments is declining.
Apartment vacancies will put downward pressure on rental rates, especially in the middle levels. This is already being seen in New York, where building managers are unfamiliar with vacancies and may be frightened by the prospect of having multiple housing units vacant at the same time in the same building. There are reports of building owners voluntarily lowering rents by 10 to 30 percent to keep more of their tenants in place.
Another measure of the decline in construction is the report from Home Depot, where revenue was down 9 percent from a year ago. This means that do-it-yourselfers are not picking up the slack from the construction industry’s slowdown. The pace of construction has fallen off only about 36 percent from last year, so there is plenty of room for it to decline further — indeed, with demographic trends working against it, it will be somewhat surprising if the pace of construction returns to these heady levels at any time in the next 15 years.