Single family residential (SFR) starts were 19% below one year earlier in the six-month phase ending December 2022. During those same six months, multi-family construction starts were down 7% from the six-month phase a year earlier. 

In 2021, multi-family construction experienced a 4% increase from the prior year, with 55,200 new units started. Demand for multi-family rentals has generally been higher during this past decade compared to new SFRs. But new multi-family construction continues to hit roadblocks in the form of labor and supply shortages — on top of vocal not-in-my-backyard (NIMBY) advocates.

In contrast, SFR construction starts in 2022 were down 2% from the previous year, for a total of 62,900 new SFRs started. This downward movement follows a construction bounce in 2021, the temporary surge being the result of homebuyer fear of missing out (FOMO), low home-resale inventory, and demand for remote locations where zoning does not much interfere with construction starts as occurs in coastal urban centers. And yet, compared to the 150,000 SFR starts achieved in 2005 at the height of the millennial boom, the 64,500 SFR starts achieved in 2021 are a fraction of the starts needed to meet demand.

State-initiated legislative efforts to add to the low- and mid-tier housing stock have focused on encouraging more multi-family construction in recent years. As a result, metro areas with the highest annual increases in construction include Sacramento, Riverside and San Diego. The most anemic growth occurs where zoning remains restrictive for housing, including San Francisco, San Jose and Los Angeles.

While builders were beginning to cash in on legislative incentives and rising homebuyer demand, leaping mortgage rates and spiraling sales volume and prices in 2022 crushed builder sentiment. Thus, residential construction starts will not reach their full potential until after the 2023 recession, when prices bottom around 2025 and the recovery picks up steam around 2027.

Updated February 21, 2023. Original copy posted November 2012.

Chart 1

This chart illustrates the number of California residential construction starts during semi-annual phases ending in December and June.

Chart update 02/21/23

 Six-month period endingDec 2022Dec 2021Annual change
SFR Starts 25,00030,800-19%
Multi-family Starts 26,30028,200
-7%

Chart 2

This chart shows the number of construction permits issued each year for multi-family and SFR homes in California.

Chart update 02/21/23

 2022202120202005 peak
SFR Starts
62,900
64,500
60,800
154,700
Multi-family Starts
55,200
52,800
45,100
50,300

Related video:

Video updated March 2023

*Forecasts are made by firsttuesday and are based on current new home sale trends, actual construction starts and current government policies.

Detached single family residential construction trends in California:

  • 25,000 SFR starts took place in the six-month period ending December 2022. This is 5,800 fewer starts than occurred during the same period one year earlier, a 19% decrease.
  • 62,900 SFR starts took place in 2022. This is down 2%, or 1,600 starts, from 2021.
  • For perspective, this cycle’s peak year in SFR starts was 2005 with 155,000 starts. The lowest year was 2011 with 22,000 starts.

Detached SFR forecast:

  • firsttuesday‘s projection for SFR starts in 2023 is a slight decrease from the prior year. The forecast for 2023 is most affected by the downward pressure placed by higher interest rates in 2022, which has slashed buyer purchasing power. Expect SFR starts to remain below their potential in the next two years, until the recovery from the 2023 recession begins to pick up steam, likely around 2025.
  • SFR starts have increased gradually each year since bottoming in 2011, but remain far below the Millennium Boom peak.
  • Subdivision final reports will remain low until developers sense a return of first-time homebuyers is on the horizon.
  • The next peak in SFR starts will likely occur during the boomlet period of 2026-2027.

Multi-family housing construction trends:

  • 26,300 multi-family housing starts took place in the six-month period ending December 2022. This is 1,900 fewer starts than occurred during the same period one year earlier, a decrease of 7%.
  • 55,200 multi-family housing starts took place in 2021. This was a slight 4% higher than 2021, but still below 2018 when multi-family starts hit their most recent peak.
  • For perspective, this past cycle’s peak year in multi-family housing starts was 2004 with 61,500 starts. The lowest year was 2009 with just 9,500 multi-family housing starts.

Multi-family housing forecast:

  • firsttuesday forecasts a slight increase for multi-family housing in 2023. As the economy is stuttering alongside rising borrowing costs, lenders continue to keep a tight fist on funds, hampering builders. This dynamic will only worsen as interest rates continue to generally rise over the coming decade, slashing buyer purchasing power. The concurrent building material and construction labor shortages are also holding back new development.
  • Multi-family housing starts were expected to rise at a gradual pace beginning in 2020, as several legislative changes aimed at increasing multi-family construction encourage more building of dense, low- and mid-tier housing. However, social distancing restrictions and tightening lines of credit pushed multi-family construction numbers down significantly in 2020-2021, though they are now picking up.
  • The next peak for multi-family housing starts is likely to occur around 2027-2028, with the recovery of all jobs lost to the oncoming recession and crux of the next housing boom.

Statistics related to California housing:

  • 14.5 million total housing units existed in California in 2021, 13.4 million of which are occupied and 7.5 million of which are owner-occupied, according to the U.S. Census Bureau. This continues a slight increase over prior years.
  • Prior to 2020, California population growth had been increasing at a rate of 0.5%-1% per year. But California’s population has since begun to decline, the result of more deaths than births alongside more residents moving to other states in search of a lower cost of living.
  • 17.8 million people were employed in California in October 2022. This is just over the number of jobs held prior to the 2020 recession, according to the California Employment Development Department (EDD).
  • The rental vacancy rate averaged 4.3% in 2021.

Related articles:

Nobody’s home: California’ residential vacancy rates

Golden state population trends

Key factors for builders

How do builders decide when and where to build? Builders analyze existing home sales, end user demand and local employment. Together, an analysis of these and ancillary factors produces a prediction of future construction trends.

Obstacles facing SFR builders

While end user homebuyer-occupant demand is the ultimate driver of construction starts, several obstacles face builders in 2021-2022 that will determine the pace of SFR and condo starts.

Builders rely on buyer-occupants to support new home construction. Discouraged by low inventory, high home prices and rising interest rates, buyer-occupant demand to purchase a home in 2018 remained stunted through 2019. However, 2020 saw interest rates plunge to record lows, which boosted buyer interest, a need unfulfilled by available resale homes since sellers remained timid in 2020. Yet, builders were largely unable to meet homebuyer demand due to social distancing measures and tightened access to credit.

In 2021, construction began to pick up as homebuyer enthusiasm exceeded the resale market and spilled over into new homes. However, building material shortages have caused delays and soaring costs, pricing out many would-be homebuyers and holding back construction increases.

Obstacles of concern to future construction starts include:

  • the historic job losses of 2020, over 300,000 of which still need to be recovered in California as of April 2022;
  • tightened credit for homebuilders;
  • building material shortages which continue in 2022;
  • rising mortgage rates, reducing homebuyer borrowing capacity; and
  • restrictive zoning regulations, which discourage density in desirable living areas.

Until these factors are considered and a conclusion reached, builders (and their lenders) may not take for granted that construction starts will pay off. Expect starts to remain low until most of these factors collectively improve and starts have another 12-18 months to catch up, likely to occur around 2027.