U.S. housing construction surged in July, far exceeding expectations as developers responded to strong demand for rental housing. The recovery highlights a gap in the housing market, as single-family construction is struggling due to high mortgage rates, while multifamily projects are expanding.
According to Census Bureau data released Tuesday, housing starts increased 12.9% in July compared to the same month last year. Only a 2.8% increase was predicted by economists polled by The Wall Street Journal. A large portion of the gains were driven by developers of multifamily projects; the construction of buildings with five or more units increased 27.4% year over year. A more moderate 7.8% increase was seen in single-unit starts.
Large demand for rental housing increases home building
A portion of the increase is due to the resumption of regular construction after builders put a halt to projects last summer in anticipation of possible fall interest rate reductions. However, the pace of apartment construction points to a larger pattern. From January through July, multifamily construction rose 18.1% compared with the same period in 2024.
That growth has been driven by an increase in the demand for rentals. In favor of apartment leases, many potential buyers are postponing home purchases until borrowing costs decrease. Multifamily developers have found it easier to obtain financing as a result of expectations that the country’s rent growth will pick up by the end of the year.
“It’s not a fluke,”chief economist at the National Association of Home Builders Robert Dietz said. “It goes back to that same housing-affordability story.”
Some pressures and uncertainty remain
Construction of single-family homes, however, is still under pressure. Single-family housing starts have decreased 4.2% since the year began. Due to high borrowing costs and rising material prices associated with tariffs, home-builder confidence has fallen to some of the lowest levels in the last ten years. Additionally, builders are forced to halt new projects until inventories decrease due to an excess of single-family homes built during the period of lower rates.
Geographically, the Midwest, where housing costs are still reasonably low when compared to other regions, is where the majority of new construction is concentrated.
Despite July’s impressive performance, indicators for the future point to difficulties. A gauge of upcoming construction activity, building permits, decreased 5.7% from the previous year. While multifamily permits fell 1.8%, single-family home permits fell 7.9%. “That largely reflects still-present economic uncertainty,” said Moody’s economist Matthew Walsh.
The uncertainty is increased by cost pressures. According to Dietz, roughly 60% of builders say that President Trump’s tariffs have increased their material costs. Developers are worried about immigration policy, which could lead to a worsening of labor shortages.
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