Residential building market shifts to multifamily homes

By Justin Sayles, Staff Writer


The first six months of 2006 show a residential construction market more focused on multifamily homes than it had been in the recent past, while the single-family market is slumping, according to figures from the R.I. Builders Association.

The group last week reported that 414 permits were issued for multifamily homes between January and June, more than double the 194 issued in the first six months of 2005.

Permits for single-family homes, however, dipped. The association reported that 799 permits were issued during the first six months of 2006. That figure represents a 9-percent decrease when compared with the 875 permits issued between January and June 2005.

Roger Warren, executive director of the association, said the strength of multifamily home construction in the face of slumping single-family figures shows that historic rehabilitation and affordable-housing efforts throughout the state are working.

Typically an “erratic” portion of the construction industry, multifamily housing has experienced a resurgence in Rhode Island as demographics shifted and tax credit programs have been created. Efforts to retrofit abandoned mill buildings and other historic structures for housing also have been successful, Warren said.

Conversely, single-family homes have taken a hit in recent years because of the increased cost of land and construction. Warren said that multifamily housing represents a more economically viable solution for developers.

“If you take it as a total, the market in effect may be shifting,” Warren said.

The multifamily market could also experience another boom in coming months with voters being asked to decide the fate of a statewide housing bond. The $50 million referendum would go toward affordable-housing projects. Warren said that if it is approved, the association expects much of the money will go toward higher density housing projects. It would also represent an “economic shot in the arm,” he said.

The quarter also presented another anomaly. The number of single-family home permits issued from April through June marked a decrease from the first quarter of 2006.

Historically, Warren said that the second quarter has been more active than the first quarter in terms of construction. But the drop-off in permits issued – from 415 in the first quarter to 384 in the second – could be attributed to several factors, he said.

Rhode Island experienced a generally mild winter this year, Warren said. The warmer weather allowed more work to begin on homes between January and March.

Additionally, the overall market is slowing down, Warren said. The selling market has cooled, as evidenced by figures released by the R.I. Association of Realtors this month.

Those figures show sales of single-family homes dropped 9.86 percent this past quarter from the same period in 2005. Homes are staying on the market an average of 11 days longer than they had last year, while the median price – at $285,000 – remains unchanged from where it was a year ago.

Colin P. Kane, principal of Peregrine Group LLC, said that the overall industry is still in good shape despite the signs of slowing. Construction companies are still witnessing job growth and interest rates remain relatively low, he said.

Peregrine, which develops multifamily projects, had only one unit in inventory as of last week, Kane said.

The slowdown in single-family permits is likely a sign that a previously booming market is balancing itself, he said.

“The market was so hot,” Kane said. “I don’t think that the market has stopped. I think the market has just gone to more of a traditional residential market.”

Despite reports that residential home construction and sales are lagging nationwide, Warren said Rhode Island maintains a relatively high demand and doesn’t have “a really highly inflated market.”

“I don’t think that you’re going to be seeing the decline that you are going to in other parts of the country,” Warren said. “And when people see that, I think they will be coming back to the market here in Rhode Island.”

The drop in single-family home permits cut across the state, with 25 of Rhode Island’s cities and towns reporting drops during the second of 2006. But several communities – including Barrington, New Shoreham and Providence – saw increases during the quarter.