MDU Buildings Reach New High


Construction of multiple-dwelling-unit (MDU) apartments by nongovernment builders continues to set records this year, according to the U.S. Census Bureau, with about 532,000 new starts expected in 2021. That seems realistic, but beware. MDU housing starts in 2020 were well below projections –
444,000 rather than the 481,000 the census projected and the 525,000 Broadband Communities predicted.

What happened, of course, was the COVID-19 pandemic … and a lot more.

Most units actually built received construction permits in 2019 and early in 2020, before many in the industry fully understood the devastating nature of the pandemic, but seasonally adjusted monthly average permitting and housing starts continued to increase, even into August 2021. Although only a quarter of all U.S. dwelling units are in multifamily buildings, 32 percent of new units are. In the 67 largest metropolitan areas for MDUs, the figure is 38 percent.

Nevertheless, it appears that 2020’s slight decrease of 37,000 in MDU dwelling units (almost 7.7 percent) will be easily erased this year (Chart 1) and follows the long-term trend for MDUs since recovery from the Great Recession of 2008–2009 began with one exception: the Northeast (Chart 2).

Chart 1: Construction starts for MDU buildings with at least five units plus single-family housing; 2021 data through July, estimated for last half of the year. Most new units are in buildings of 20 units or more; the average building size this year in MSAs permitted in 2020 is just under 30 units, down from 31 in 2019 but about the same as in 2018. Those numbers are down from 34 in 2017 as wood-framed MDUs become more common. In this chart, the roughly 12,000 annual construction totals for MDUs of two, three or four units is omitted to keep data after 2017 compatible with earlier years.



Chart 2: Regional variations in annual MDU construction. In this chart, MDUs of all sizes are aggregated; the census does not fully report MDU data by size in this data series. Note that most MDU growth has been in the South and West since the recession started in 2008, but MDU volume in the West declined in 2019 before rising again.



In fact, the census predicts MDU construction this year almost 20 percent ahead of 2020’s actual numbers and more than 10 percent ahead of the previous peak, 2019.

New, single-family housing production is still far below the pre-recession peak, but the volume of dwelling units in large MDU buildings – five units or more – has been on the rise since 2009 with only minor blips in 2017 and 2020. Volume has been above the pre-recession peak since 2014, setting new records almost every year.

New MDU construction has been the sweet spot for broadband deployments since the 1990s, and fiber deployments since Verizon began its first MDU Fios builds in 2005. Installing broadband in new MDU construction is by far the cheapest way to pass a dwelling unit, and using fiber is the cheapest of all. But only about half of new construction has used fiber since the technology became widely available 15 years ago, and that has only just begun to change. One reason is obvious: COVID-19 brought more work, education and health care to many households. It also brought federal subsidies, low-cost deployment technology and cheap financing, along with a new municipal concern: resilience against future pandemics. Thus, even the least technologically savvy developers now make broadband a priority.

Typical costs to pass an apartment door with fiber are far less than $1,500 and typically less than $1,000 in new construction. That allows builders to consider fiber even when projected full tenancy might take a year or more to achieve. The deployed network can also be sold for $2,500 to $3,500 per door these days.


Many unprecedented forces are at work, and most are not yet settled by society as a whole. In specific locations, they could tip the balance one way or another.

The issues include:

  • Labor shortages. At first, the pandemic did not slow the pace of construction much in 2020. Most jurisdictions that had severe lockdowns exempted most outdoor construction work. Construction labor eventually became tight in 2020, mainly because many urban areas finally restricted on-site construction work, especially indoors, because of COVID-19. That loosened in 2021 as the winter COVID-19 peak subsided and vaccination rates began to rise. But it tightened again in a few locations as the Delta COVID-19 variant ignited a fourth surge. The trend toward wood-frame MDUs continues. That, in turn, allows more labor to be handled in factories.
  • Weather. Winter was stormy in much of the country. Unusually hot weather in the West, unusually rainy weather in the East and plenty of strong tropical storms in the South hindered the summer construction season. Will the broadband industry need to adapt to regular bouts of rough weather?
  • Mortgage rates and availability. All was fine until this past summer. Then rates started to rise. They are, however, still near historic lows. Younger households still report difficulty getting mortgage commitments, often because of high student loan balances. Congress could help solve this issue by making college loans dischargeable in bankruptcy. Instead, Congress is arguing over forgiving loans. That approach is politically more divisive. Either way, the issue is real, but overblown in many cases. The decline predates especially massive forest fires in the past few years but comes after several years of what had been record fires that have made fire insurance prohibitively expensive in many smaller communities. That, in turn, makes mortgages hard to get. Until this year, the issue did not impact MDUs in Western towns bigger than rural forest enclaves. Now it often does.
  • Own vs. rent. Most new MDU housing is being filled by renters, not owners, even for cases in which individual mortgage financing is possible. That’s good for broadband network deployers. It is always easier to deal with one landlord than a homeowners association or individual apartment owners. When and if those rental buildings flip to condominium ownership, broadband is already there.
  • Pricing. Higher interest rates tend to erode prices for new homes, as families budget the balance between interest and principal in their monthly mortgage payments.
  • Migration from cities. This “trend” is overblown. There is some flight from some cities (especially in California) that are particularly congested and high-priced. But in most places, the issue is secondary. For families seeking more space and considering the idea of having to commute only a few days a week, more-distant suburbs beckon. That puts demand on single-family homes. In urban single-family neighborhoods and near-city suburbs, there’s greater acceptance of multifamily housing. This is due partly to market demand and partly because in the future, not every dwelling unit will generate…


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