Slowdown of housing construction in NJ a ‘wakeup call,’ expert says
New data from the U.S. Census Bureau shows homebuilding in New Jersey is slowing down, and that’s expected to put a damper on economic activity in the Garden State moving forward.
According to Patrick O’Keefe, director of economic research at CohnReznick, the number of units of new housing that have been approved in the first five months of this year compared to the first five months of last year is down about 12.6 percent.
He also noted that last month a total of 1,937 permits were issued, which was 12.4 percent fewer than in April.
“What we’re seeing is a significant downturn in the number of approvals to begin construction of either single-family homes or multi-family homes such as townhouses and apartments,” he said.
O’Keefe explained a building permit is the final authorization that a builder needs to commence construction, which means it can be used as a barometer “in terms of spending on equipment and goods and services, hiring people. It’s an indication of level of activity that we can anticipate over the next 12 months.”
He noted when construction activity is ramped up it has a fairly strong multiplier effect elsewhere in the state’s economy.
“We see the purchase of goods, we see hiring of brick masons and carpenters and others who are going to work on preparing the site and elevating the structures,” he said.
On the flip side, when there’s a decrease in activity “it’s like a driver taking his or her foot off the accelerator, the vehicle in which that driver sits slows, and then all of the traffic behind it, they also slow down. What we see is a parade of vehicles that was going at a faster pace now moving at a slower pace.”
O’Keefe added the decline we’re seeing “is not the end of the world, but it is enough to look at and to begin to take account of the fact that this year we’re seeing a much slower rate of growth, so at this point it’s a wakeup call, not an alarm bell.”
He pointed out historically New Jersey has been a difficult place for builders to construct new homes, offices and factories, because we’re a very densely populated, high cost-of-living state. He stressed, however, that’s been the case for a long time, and this current slowdown is not tied to any new regulations, which is worrisome.
“We see this activity slowing at a time when interest rates, and the mortgage rate is a key determinant of building activity, when interest rates are still at very low levels, and our home ownership rate has fallen quite a bit over the past several years, so we’d like to see that moving back up.”
He stressed multi-family housing, which is most of the new development taking place now in Jersey, entails rigorous adherence to very tough environmental standards, so the process of new construction tends to move slowly, and that could be part of the reason we’re seeing the a slow down in new construction.
“I don’t think it’s a panic, I don’t think the lights are flashing red, but they do suggest that we need to pay attention,” he said.