The Looming Rental Boom, Cont’d.

Karl Smith:

Housing construction permits climbed last month to their highest level since March 2010, according to Commerce Department data, as the near record-low mortgage rates lured some buyers into the market.The future pace of consumer spending ultimately will be decided by the growth of household income, which in turn is tied to the health of the job market.

And there, Herrmann saw some reason to be optimistic. He forecast that private-sector payrolls would rise an average 160,000 per month for the rest of this year and by 200,000 per month in the first four months of 2012. Private payrolls increased 104,000 in October.

In a sign that the job market may be improving, claims for unemployment benefits dropped to their lowest level in seven months in the week ended Nov. 12, to 388,000, Labor Department figures released yesterday showed.

Though actually most of this is driven by Multi-Family investment. As long as Europe doesn’t destroy the world – and it very well may – I expect Multi-Family starts to be posting record highs by the end of 2012.

And I mean record, never before in American history will construction be started on so many apartment complex units.

Here are the most recent numbers on multi-family starts from Bill McBride:

Bill also looks at household growth by age group:

When you look at this chart, I want you to think about how much extra indebted and jobless my generation is, and then ask yourself where the housing market is likely to be over the next decade. Are the 25-44’s going to drive another boom in new detached single-family homes in the townships? Or are they going to opt for high-quality rentals and cheaper mortgages for condo and loft housing? The oldest cohort isn’t going to be driving growth in single-family. Where is the single-family housing growth going to come from?

This is why I keep beating the drum on density. The core cities need to revisit their zoning ordinances and start figuring out how to absorb a lot of new high-quality rental housing, or they’re going to miss out on a critical opportunity.

Yes, a lot of this multi-family construction is going to be in New York City and Philadelphia, but NYC has actually been downzoning over the past 10 years, despite huge demand for housing. Just as the LV absorbed New York and North Jersey’s population outflows during the 2000’s, the same thing is probably going to happen again when growth returns.  They’re not going to be able to add this much rental capacity, so rents are going to keep going up, and younger people are going to get priced out into smaller cities.

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