New housing projects slow down in NJ and across the country. Here's why

After a spike in new residential construction in May, permits for new housing projects in New Jersey and the rest of the country slipped below estimates in June.

There was a 3.7% decline in permits, which puts the seasonally adjusted annual permitting rate of 15.3% below that of June 2022, Census Bureau information shows. Sales of new single-family homes also slowed in June to a seasonally adjusted annual rate of 697,000, according to the U.S. Department of Commerce. In 2022, the rate of new home sales was nearly 24% higher.

What's driving housing construction numbers?

Restricted inventories of existing homes continue to boost new construction, but economic factors could see a further pullback in starts by the end of the year, say experts. Danushka Nanayakkara-Skillington, the National Association of Home Builders' assistant vice president for forecasting and analysis, said higher mortgage rates have been a problem but improving affordability conditions is possible.

The rate on the average 30-year fixed-rate mortgage soared from just over 3% at the start of 2022 to more than 7% since last November, giving those with lower mortgage rates a reason to stay put.

“While builders have slowed construction activity as interest rates have approached 7%, we anticipate mortgage rates will stabilize later this year in anticipation of the end of the Federal Reserve’s tightening cycle,” she said.

National Association of Home Builders officials credited the May increase to limited inventory and easing pressure on supply chains and labor markets.

Single-family home construction slows down

In June, single-family home construction slowed most significantly in the Northeast, South and Midwest, according to Census Bureau records. The 8% drop in housing starts across the country followed a nearly 22% month-over-month increase in May. The jump was the largest since 2016.

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New Jersey's multi-unit housing permits holding steady

In New Jersey, a surge of new housing permits that held relatively steady since 2019 has also slowed. In June, 2,515 new housing units were authorized. In May, the number was 3,757. In June 2022, that number was 3,636.

Nationwide, starts for buildings with five units or more declined by 11.6% to the lowest rate since December 2022.

Still, the number of permitted structures with five or more housing units in New Jersey was relatively high at the end of 2022 and remained so in June. The 89 permits released in June were 30 fewer than in May and only five fewer than in June 2022. As a percentage of total permits, the 89 permits were the most in the nation. In total numbers, the 89 permits trailed only the hundreds released in Florida, Texas and California.

Is the growth of multifamily units slowing down?

Still, experts say there are signs the multi-year growth in apartments could ease.

The number of single-family homes under construction in May was about 16% less than the previous May.

Nonetheless, the number of apartments was up 17%, reaching its highest level since 1974, according to the National Association of Home Builders' records. In the annual State of the Nation’s Housing report from the Harvard Joint Center for Housing Study released in June, researchers predicted a forthcoming crunch due to rising vacancy rates as units pile up and new projects face higher interest rates and tighter lending standards. Home inventory is also up about 7% year-over-year, according to data compiled by Realtor.com.

Nathaniel Drake, a researcher with the Economic and Strategic Research Group at Fannie Mae, said in a July 21 statement that future economic conditions could help single-family home construction, but may not be able to extend the recent record high in multifamily construction projects.

"If the economy continues to expand in the coming quarters, we think starts are capable of moving toward an annualized pace of 1 million units," Drake said. "The rate of multifamily starts, on the other hand, is expected to continue to slow as national rent growth is sluggish and tighter bank lending conditions will likely weigh on future projects."

NJ's affordable housing

New Jersey towns doubled the rate at which they built affordable housing after a judge declared the statewide agency meant to oversee such construction defunct in 2015, shifting the process to court settlements, according to a report released in April by Fair Share Housing Center.

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The analysis argues that states across the country should emulate New Jersey’s legal framework for zoning and building affordable housing, known as the Mount Laurel doctrine — a process that increased the production of multifamily housing and began integrating a segregated state, the nonprofit found. The report came as New Jersey towns look ahead to 2025, the year they must reconsider their zoning codes and calculate how many new units of affordable housing they are required to build.

A series of influential New Jersey Supreme Court cases beginning in 1975 said municipalities must zone and create a “fair share” of affordable housing for low- and moderate-income families, which typically means a household would spend no more than a third of its monthly paycheck on housing expenses. The state created the council to approve towns’ affordable housing plans.

David Zimmer covers local communities in North Jersey and specializes in stories with a historic slant.

Staff Writer Ashley Balcerzak contributed to this story.

This article originally appeared on NorthJersey.com: New housing projects slow down in NJ and country. Here's why