The market conditions in the last few years that keep multi-family construction spending from dipping as much as single-family construction spending are now reversing. The expected single-family recovery a few months ahead will be partly offset by weakening multi-family development, entirely in the apartment market. Multi Family construction spending increased 8.4% in the first seven months of 2008 after dropping 19% during 2007.

The market drivers for a strong apartment market in the last few years were low apartment rents relative to high single-family home prices and job growth boosting total housing demand.

Job growth ended early this year. However the 600,000 layoffs through August are extremely small for a recession period and have been heavily concentrated in the motor vehicle, temporary help and financial services industries. But the decline in real income now underway will cause deeper job cuts to spread to other industries and hence to other parts of the country. This will include a worsened hiring market for new graduates who typically rent apartments.

Apartment rents increased less than 1% last year as reported by Property & Portfolio Research while home prices dropped sharply — 16% in the Case-Shiller index measuring major markets and 8% in the National Association of Realtors index measuring all markets. Declines are high as 40% occurred in some California markets.

The buy vs. rent decision metrics moved in favor of renting during 2006-07 and into early 2008 but that is set to reverse soon as home prices near the bottom in this price cycle in most of the country although not yet in the southwest and Florida. Also, New York City, 15% of the national multi-family market, is rapidly turning from boom to bust with the collapse of the investment banking and hedge fund industries and the wave of layoffs now just beginning.

The condo/coop portion of the multi-family market will recover with the single-family market but the recovery will be delayed a few months because of the higher vacancy rate for condos.