Beyond the Headline: Housing Starts Data

In its latest release, the U.S. Census Bureau reported that total housing starts in December 2012 increased 36.9 percent over December 2011 to a seasonally adjusted annualized level of 954,000. This level is the highest reported since July 2008 and signals the housing market continues to improve. While this is a positive indicator for the economy, additional time spent investigating the underlying data may lead to a better understanding of current market conditions.

A closer look at the seasonally adjusted annualized data reveals that the 36.9 percent year-over-year growth was driven primarily by increased starts for multi-family units (apartment complexes) rather than single family units. Compared to a year earlier, multi-family starts increased 115.7 percent while single family units increased only 18.5 percent. The table below reports historic seasonally adjusted annualized data for the month of December from 2009 through 2012. This information uncovers a longer term trend in which multi-family start growth outpaced single family growth in each of the past three years, based on December data, and these growth rates have widened over time. The remaining component of housing starts, two-to-four unit data, is typically not given much consideration due to its small representation.

Could this growth inequality have any impact on the pace of our economic recovery? According to data released by the National Association of Home Builders (NAHB), it is very possible. Based on historical estimates from 2008, the average new single family home creates 3.05 jobs and $231,288 in total income, while an average multi-family rental unit creates only 1.16 jobs and $86,709 in total income. A detailed account of these potential economic impacts is shown in the table below.

This data suggests that the economic impact of constructing a new single family home is greater than that of a multi-family unit. Therefore, while housing start growth of any kind is positive in this environment, growth driven by single family units rather than multi-family units would likely prove more beneficial to the economy, all else being equal.