Construction in Hawaii for quarter two of 2016 was much stronger than quarter one. Monthly “New Privately Owned Housing Units Authorized” data from the US Census Bureau shows April through June units totaled 1,318. That’s a 98.5% increase over quarter one’s 664. Year over year, Q2 of 2016 was 2.5% stronger than Q2 of 2015.
This is welcome news following Hawaii’s disappointing quarter one numbers. Compared to Q1 of 2015, Q1 of 2016 saw a significant drop in multi-family unit permits, and a slight drop in single family unit permits.
In total, there was a 55.5% decrease in total private residential building permits in Q1 of 2016 compared to Q1 of 2015, but single family units only decreased 8.9% – 50 less units in total. In real numbers, there were 1,410 permits taken out in Q1 of 2015 versus 627 in Q1 of this year*.
So what’s changed? In short, the number of multi-family unit building permits. Total multi-family unit permits for 2015 numbered 2,868 – the most since 3,070 in 2004, and the fourth most since 1982, with the high water mark of 4,803 set in 1991. Quarter one of 2015 saw 846 of these multi-family unit permits compared to only 113 in quarter one pf 2016. This difference accounts for the majority of the decrease in total numbers.
Building Permits for Private Residential Single Family Units in quarter one of 2016 accounted for 514 of the total 627 permits. That’s 82% of the total private residential building permits for the quarter. Compare that to 564 in first quarter 2015. Those 564 single family unit building permits accounted for only 40% of the 1,410 total private residential permits.
Looking through quarterly statistics dating back to 1982, the only thing consistent about multi-family unit permits is that their numbers vary widely from quarter to quarter. It’s not uncommon for one quarter to account for nearly 50% of a yearly multi-unit permit total. A contributing factor to this volatility is the consolidation of many units together in large condos and apartments which are permitted together. For example, only 21 structures accounted for 806 of Q1 2015’s permitted units. With such a small number of projects accounting for a large portion of total quarterly permits, it’s important to note that year over year totals are a better indicator of trends, because of the volatility caused by small sample sizes.
So what does it mean? First of all, 2015 was a very strong year for construction in Hawaii. Total Private Residential Building Permits numbered 5,248. While not a record setting year – the high in recent memory was 9,706 in 2005 and further back 1989 saw a peak of 9,795 – the 2015 total soars above the 3,085 average number of permits taken out per year between 2009 and 2014.
Hawaii is ranked 40th in the US in population, with around 70% of the population living on Oahu. Because Oahu is only 597 square miles it severely limits new home construction. Because of all that, as a state we have a small sample size and looking at the US data as whole is necessary to see overall construction trends. For the US as a whole, Q1 2015 to Q1 2016 saw an increase of 6.15% in new privately owned housing units, while Q2 2015 to Q2 2016 saw an 8.77% decrease.
A major factor in new construction is consumer confidence. Between December 29 and February 11, the Dow Jones Industrial Average lost a staggering 11.63% of its value amidst concerns over the health of China’s economy and the negative effects of low global oil prices on the jobs of workers in the US energy sector, while the S&P 500 lost 11.99% of its value. Consumer confidence and new construction have a strong connection, and economic uncertainty directly impacts new housing starts. Since February, new construction permits in Hawaii have been on an upward trend as quarter two results show. However, June 21 saw the Brexit vote which was a shock to the economic system. Quarter two results, which take data from April, May, and June, won’t truly show the effects Brexit may be having. Despite Brexit, since February 11, the DJIA is up 18.4% and the S&P 500 is up 19.34% – reaching an all time high.
What we are waiting for in Q3 is to see is if the Brexit vote was another shock to this upward progress, or just a hiccup.
All statistics come from Hawaii’s Department of Business, Economic Development & Tourism, and the US Census Bureau.
* There is a discrepancy in numbers between the US Census Bureau dataset and Hawaii’s Department of Business, Economic Development & Tourism’s data.