Multifamily Housing Businesses: How Many, and How Important?
The number of multifamily businesses in the United States depends, in part, on how one defines a multifamily business. Are they builders? Owners? Managers? The Census Bureau’s economic census looks at all three of those groups.
Let’s start with builders: the last economic census counted roughly 4,400 multifamily construction establishments. In one year, they produced about $16.7 billion worth of construction (most, but not all, of it new apartment buildings) and employed over 44,000 workers. In addition to the specifically identified multifamily builders, another 6,070 establishments (including remodelers and specialty trade contractors) reported specializing to some extent in multifamily construction. These 6,070 establishments employed a total of 54,000 workers.
Although these numbers may seem substantial, they are outstripped by the figures for firms that own and manage apartment buildings. This isn’t especially surprising, given that such a small fraction of the existing stock is added each year through new construction. The economic census counted over 51,000 lessors of apartment buildings and more than 26,000 establishments managing residential properties. Together, these lessor and property management businesses employ well over a half-million workers. Apartment buildings owned by Real Estate Investment Trusts (REITs) accounted for a smaller, but still significant, amount of economic activity.
The Economic Census
Even those in the multifamily industry who are quite familiar with federal data collection efforts such as the decennial Census and the survey of construction (used to generate the official housing starts numbers) may not know that there’s something called the economic census. Nevertheless, it’s a major government undertaking, designed to be the premiere source of information about the structure and activity of businesses in the United States. The Census Bureau conducts the economic census by mailing industry-specific forms to individual companies, and the companies are then required by law to provide information about each of their business establishments (relatively permanent addresses) to the Census Bureau. At last count, the Census Bureau mailed more than 600 versions of the form to a total of over 5 million companies.
Although its antecedents can be traced back to the early nineteenth century, the first completely integrated economic census to cover a wide range of industries in a comprehensive fashion was in 1954. Since then the law has been changed and now requires an economic census twice every decade — in years ending with a “2” or a “7” — so that the latest economic census was undertaken in 2002. But a 2002 economic census means a census of business activity taking place in 2002, so that data collection can’t be completed until well into 2003. And it’s a massive amount of data that takes awhile to compile and tabulate, so many of the more than 1,500 reports that will eventually be produced from it have not yet been released.
Preliminary versions of all 651 reports in the “industry” series are now available, however. These provide summary statistics on the volume of business and people employed in each industry (Other series to be released in the future will give more detailed breakdowns by geography and products produced). Although the public can access these reports free of charge on the Internet, the multifamily sector is spread over more than one industry, and some multifamily-related activities are subsets of broader industries that you can find only by searching through tables toward the back of these reports. So it’s perhaps worthwhile to summarize the information in one place for multifamily developers, owners, and managers who may lack the time to search through all the relevant documents.
In the system used by the Census Bureau, new multifamily housing construction is classified as industry 236116. It includes general contractor establishments whose primary business activity is building new high-rise, garden, and townhouse apartments; multifamily design-build firms; and multifamily housing construction management firms that act as general contractors. As a distinct industry, it gets its own industry-series report in the economic census.
The census report shows that there were 4,397 such multifamily construction establishments in the U.S. in 2002 (Table 1). Recall that the census defines these establishments as permanent offices of construction companies, so a single company may — and often does — contain more than one construction establishment.
Taken as a whole, the 4,397 multifamily builders had a significant impact on the national economy. They produced a total of $16.7 billion worth of construction in 2002. This can be broken down into work subcontracted out, the cost of materials purchased (including components, supplies, and fuels), and value added to the final product by multifamily builders. In 2002, the 4,397 multifamily construction establishments subcontracted out $9.0 billion, purchased $3.6 billion worth of materials, and added another $4.4 billion in value.
The value-added component includes employee compensation. In 2002, the 4,397 multifamily construction establishments carried 44,384 employees on their payrolls, to whom they paid a total of $1.7 billion in wages, salaries, and benefits. The figure of 44,384 includes workers employed in any type of job. Nearly 28,000 of them were actual construction workers. Multifamily builders, of course, typically employ many additional construction workers indirectly through subcontractors.
The census report on multifamily construction also contains two pages of general business and employment statistics broken down by state. For readers interested in the geographic detail, these pages were extracted and are posted to the NAHB Web site as a pdf file. The states with the greatest number of multifamily establishments in 2002 were California (413) and New York (400). No other state had more than 300, as Florida came in a distant third with 278. The 278 multifamily builders in Florida did $2.8 billion worth of construction work, however, considerably more than multifamily builders in either California ($1.8 billion) or New York ($1.6 billion).
Although the construction work done by multifamily builders in 2002 includes some ancillary activities such as remodeling and single-family construction, production of new multifamily housing accounted for three-fourths of the $16.7 billion total ($12.6 billion).
Other Multifamily Construction
On the other hand, some new apartment construction is carried out by firms whose primary business activity is some other form of construction. The detailed breakdown of construction industries in the economic census is as follows:
236 Construction of Buildings
236115 New Single-Family Housing Construction (except Operative Builders)
236116 New Multifamily Housing Construction (except Operative Builders)
236117 New Housing Operative Builders
236118 Residential Remodelers
236210 Industrial Building Construction
236220 Commercial and Institutional Building Construction
237 Heavy and Civil Engineering Construction
237110 Water and Sewer Line and Related Structures Construction
237120 Oil and Gas Pipeline and Related Structures Construction
237130 Power and Communication Line and Related Structures Construction
237210 Land Subdivision
237310 Highway, Street, and Bridge Construction
237990 Other Heavy and Civil Engineering Construction
238 Specialty Trade Contractors
238110 Poured Concrete Foundation and Structure Contractors
238120 Structural Steel and Precast Concrete Contractors
238130 Framing Contractors
238140 Masonry Contractors
238150 Glass and Glazing Contractors
238160 Roofing Contractors
238170 Siding Contractors
238190 Other Foundation, Structure, and Building Exterior Contractors
238210 Electrical Contractors
238220 Plumbing, Heating, and Air-Conditioning Contractors
238290 Other Building Equipment Contractors
238310 Drywall and Insulation Contractors
238320 Painting and Wall Covering Contractors
238330 Flooring Contractors
238340 Tile and Terrazzo Contractors
238350 Finish Carpentry Contractors
238390 Other Building Finishing Contractors
238910 Site Preparation Contractors
238990 All Other Specialty Trade Contractors
Among the construction establishments that deal primarily in buildings but are not specifically defined as multifamily builders, operative builders (sometimes called “spec” builders, who build residential buildings on their own account for sale) built $3.3 billion worth of new apartments, and those who build primarily single-family homes also built new apartments valued at a total of $0.5 billion. The amount of new multifamily construction undertaken by remodelers was negligible; and if any of the firms specializing in industrial or commercial buildings also built apartment buildings, the industry reports did not break it out from other building construction for separate reporting.
This also was true of establishments in the heavy and civil engineering industry categories, which include land subdivision. If any of these establishments built apartment buildings, the economic census did not break it out from other construction activities.
On the other hand, the economic census did report on new apartment construction for a few categories of specialty trade contractors. But much of this is included in the value of work subcontracted out by the multifamily builders, so the value of construction work done by the specialty trades shouldn’t be added to the value of construction work done by multifamily builders, as that would result in double counting.
There is another way to analyze the specialty trades, however, and that is to look at contractors who specialize in apartment buildings. The economic census reports on multifamily specialization for three trades — framing, masonry, and painting contractors. The census considers them specialized if they do more than half of their work in particular structure type, but many specialize much more heavily than that. Depending on the particular trade, 40% to 50% of the contractors who specialize at all in multifamily specialize in it 100%.
Table 1 shows statistics for these multifamily-specializing trade contractors, including payroll information and the value of their construction work. Again, to avoid double counting, subcontractor construction value shouldn’t be added to builder construction value, but the numbers provide a rough idea of the average size of the businesses.
The table shows similar information for operative builders and remodelers that specialize in multifamily. Unfortunately, for confidentiality reasons, the Census Bureau suppresses much of the information about operative builders. Some of the information on remodelers also is suppressed, but enough is provided to make a reasonable imputation of the missing pieces possible.
In addition to the 4,397 multifamily builders employing 44,384 workers in 2002, the table shows another 6,070 construction establishments that specialize to some extent in multifamily and employ at least another 53,976 workers. The total payroll for the 98,360 workers in all these types of construction businesses was $3.4 billion in 2002 including wages, salaries, and benefits.
Owners and Managers
Firms that own and manage apartment buildings also can have a very large impact on the economy. While new multifamily construction (as measured by housing starts) has been running at a healthy 330,000-to-350,000 per year, the stock of multifamily units for businesses to potentially own and manage is roughly 32 million, according to the 2003 American Community Survey.
In the economic census, these are included in the broad “Real Estate and Rental and Leasing Sector.” Within that sector, industry 5311101 is “Lessors Of Apartment Buildings,” which includes establishments primarily engaged in renting apartments buildings with 5 or more housing units to tenants.
In 2002, there were 51,502 of these residential property owning establishments. They employed 257,624 workers to whom they paid a total of $5.8 billion in wages, salaries, and benefits (Table 2). In addition, residential property owners employ other workers indirectly by contracting with firms to provide a variety of services such as property maintenance and management.
The economic census also captures firms specializing in residential property management (industry 531311). Although it doesn’t break their business down by structure type, the statistics on lessors suggest that a very large share of residential property management involves management of apartment buildings. In 2002, there were 26,223 establishments whose primary business was managing residential property. They employed 289,870 workers and paid them a total of $8.2 billion in wages, salaries, and benefits.
Again, the statistics are based on establishments rather than companies. However, the Census Bureau usually doesn’t count individual properties rented or managed by property lessors or property managers as separate establishments, but only the permanent offices out of which they rent or managed. This tends to minimize the difference between firms and establishments in the residential property leasing and management industries.
In the economic census, real estate lessors do not include REITs, which have become a significant part of the industry. Instead, REITs are captured in the broad finance and insurance industry. Here, the census reports rent receipts by type of structure, so we can include some multifamily information from REITs in Table 2 (although the amount of payrolls attributable to apartment buildings is not provided directly and has to be estimated).
All the statistics discussed so far have been based on firms with paid employees — the primary focus of the economic census. This means that we have systematically been excluding small “mom and pop” operations. In general, there are a large number of these small operations scattered throughout the U.S. economy. The 2002 economic census provides some statistics on “nonemployers,” but these statistics don’t say much about the multifamily sector, as they don’t separate multifamily structures from single family. (In property renting and management, they don’t even separate residential real estate from nonresidential.) Readers who are nevertheless interested in nonemployer statistics can find them in simple tables on the Census Bureau’s web site at www.census.gov/epcd/nonemployer/2002/us/US000.HTM.
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