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Increased demand for apartments sparks homebuilding turnaround

The depressed housing market has held the economy back for four years.

No longer.

Home construction has finally begun a gradual comeback and should add to the nation's economic growth in 2011, a turning point in the recovery from the Great Recession.

The main reason appears to be a positive consequence of the weak economy: Apartments are being built almost twice as fast as two years ago. Renting is the only option for many people who have lost their jobs, their homes or both.

Builders in November broke ground on homes -- houses and apartments alike -- at an annual rate of 685,000, the government said Tuesday. That was a 9.3 percent jump from October and the fastest pace since April 2010.

The numbers show how far the housing industry has come and still has to go:

* Builders should start at least 600,000 homes this year. That's up from 587,000 last year and 554,000 in 2009 -- the worst year on record. In a healthy market, economists say, about 1.2 million homes are started each year.

* The pace of apartment construction has soared. About 175,000 will be started this year, also roughly half the number in a healthy economy. But it's far more than the 97,000 apartments begun in 2009.

* Single-family home construction, which accounts for about 70 percent of the housing industry, has essentially stalled for three years. This year will probably turn out to be the worst in the half-century records have been kept.

* Construction of single-family homes this year could reach 440,000. That would be below last year's 471,000. In a good economy, builders would break ground on about 840,000 homes.

New homes are 20 percent of the housing market but have an outsize economic impact. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Since the recession began in December 2007, housing has subtracted between 0.5 and 1.1 percentage points from U.S. economic growth each year. Cuts in spending by homeowners have further reduced growth.

But economists say apartments are going up so fast that housing should add to economic growth this year, even if fewer families are buying houses. The U.S. economy grew at a 2 percent clip in the last quarter.

"Finally, it appears that the process of healing is under way," says Joel Naroff, president and chief economist at Naroff Economics.

Between 2005 and 2010, including the recession, 4 million American households became renters, according to Harvard's Joint Center for Housing Studies -- 10 times what would be expected in a normal economy.

And if government population estimates hold true, at least 2 million households will become renters each year through 2020. That means 400,000 apartments will need to be built each year to keep up with demand.

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