Pulled down by a collapse of the apartment market, housing construction fell for the ninth consecutive month in October to a seasonally adjusted annual rate of 1,041,000 units, according to the U.S. Bureau of the Census.
"While the single-family market is holding its own during this stage of the business cycle, the market for building apartments is a disaster area," said Martin Perlman, president of the National Association of Home Builders.
Single-family starts leveled off at an annual rate of 854,000 in October, down just 1 percent from the previous month. But multifamily construction fell to an annual rate of 187,000, the lowest level since 1959 when the Census started keeping housing starts statistics.
At the peak of the housing market in 1986, builders constructed 1.2 million single-family and 627,000 multifamily units.
"Apartment building is grinding to a halt for political as well as economic reasons," Pearlman added.
"In some markets, the economy is too weak and vacancy rates are still too high to justify any new building. In other markets where demand is still rising, builders are unable to obtain construction financing through banks and S&Ls and/or are holding off on any new construction until the federal government releases its final architectural guidelines required under Fair Housing legislation to make all newly built multifamily building accessible to persons with disabilities."
The credit crunch, which first hit builders in the faster growth urban markets, now appears to be spreading to smaller towns around the country. Particularly hard hit have been multifamily developments, which Perlman said have been essentially red-lined by commercial banks and savings and loans with the blessings of federal regulators.
"Even in weak markets, there are good real estate deals along with marginal projects and high-risk ventures," he said.
"Ultimately, loan officers and loan review committees for banks and S&Ls must feel free to weigh the merits of each project against its potential risks, using sound appraisals, realistic assessments of market demand, the credit history of the applicant and the special merits of the development. That process, however, has been replaced by a 'just say no to real estate' attitude being encouraged by banking regulators and that bias is contributing greatly to housing's downward spiral."
While the outlook for multifamily housing is bleak, declining interest rates are expected to help put a net under the single-family market, preventing much further erosion of that market in the months ahead, Perlman said.
"Single-digit mortgage rates, plus attractive pricing and other buyer incentives, could help boost sales of both new and existing homes as we enter the spring selling season next year."
Perlman, however, was less optimistic about a rebound in housing construction for the coming year. NAHB is projecting 1.2 million housing starts in 1990, down 12.7 percent from 1989 and the lowest level since 1982.
The single-family market will finish the year with 909,000 new units, off 9.4 percent from 1989, and the multifamily market with 293,000, down 21 percent from the previous year. For 1991, NAHB is projecting 1,150,000 total housing starts, off another 4.3 percent.
The decline is home building is also throwing people out of work and creating a serious drag on the national economy, Perlman added. "Since the peak of the housing expansion in 1986 when housing starts were running at a 1.8 million unit pace, we have lost about 750,000 jobs in construction and construction-related industries."
Each 100,000 unit decline in single-family construction translates into the loss of 176,000 man-years of employment. In multifamily construction, 100,000 fewer units results in the loss of 100,000 full time jobs for a year.