New building permits in the Madison region are falling, a troublesome sign as Dane County needs to add 7,000 housing units a year to keep up with demand, according to a new report from the Wisconsin Policy Forum.
While declining, new building permits remain above pre-pandemic levels.
Permitting in the four-county metropolitan statistical area is roughly double above what has been recorded nationally, but economic headwinds like higher interest rates and labor shortages could threaten needed housing development in Wisconsin’s fastest-growing region.
“We have all these factors coming together: increasing population, increasing number of households and a really depressed level of housing construction that we had seen from 2009 through most of the 2010s,” said Mark Sommerhauser, a policy researcher with the Wisconsin Policy Forum. “The levels of new permitting we need to see to make up that slack are not happening.”
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In the Madison metro — which covers Dane, Columbia, Green and Iowa counties — new permits peaked in 2021 at 10.6 housing units per 1,000 people. Permitting fell to 7.9 units per thousand people in 2022 and 7.6 per thousand people in 2023, according to the report.
Multifamily housing accounted for most of that new permitting, and compared with the three years before the onset of the pandemic, clocked in a 78% increase from 2021 to 2023.
Nationwide, new multifamily housing growth went negative at the end of 2023, amid economic factors delaying construction and many major metros getting oversaturated with new housing, according to a January housing report from Fannie Mae.
In Madison proper, new housing inventory has been insulated from that national volatility, said Matt Wachter, the city’s director of planning, community and economic development.
“In general, the trend is toward more construction, more permits,” Wachter said. “You’ve seen Austin and other markets that were so hot in COVID times have slowed down. When you fly that high you have farther to fall.”
This year is also on track to set records for new multifamily housing permits, said Kyle Bunnow, a city building inspector.
Single-family shortages
With multifamily building still at its highest levels of the 21st century, new permits for single-family housing have stayed roughly flat since the mid-2010s even though Dane County needs 54,000 new single-family homes by 2040 to keep up with population growth, according to the Dane County regional housing strategy.
The Madison metro averaged 2.3 new permits per thousand residents for single-family homes between 2021 and 2023, compared with a national average of 2.8 new permits per thousand people.
A dwindling amount of undeveloped land and an inability to expand puts limits on new single-family home construction in Madison. But in the broader metro, high land and construction costs, labor shortages and changing bank lending standards have stifled new building, said Kurt Paulsen, a professor of urban planning at UW-Madison.
In Middleton, the new 900-unit Redtail Ridge development from Encore Homes features townhomes priced at $390,000 and detached cottage homes at $450,000. Those prices follow concerted work from the developer to bring more density and affordability to the site.
“Dane County literally needs hundreds of new neighborhoods like this to meet demand for single-family housing,” Paulsen said. “But that takes municipalities and developers working together to revise their plans and ordinances to allow more housing and a greater variety of housing sizes and types.”
Another development in Middleton on Parmenter Street from T. Wall Enterprises is eying a pivot from townhouses to apartments because of dampened interest in homebuying amid high interest rates.
“Any company in the construction or development business has plenty of work to do in multifamily construction, and the returns to capital for multifamily are less risky than in single-family,” Paulsen said. “Single-family purchases are more interest rate and price sensitive.”
The statewide picture
At the state level, Wisconsin is trailing the rest of the United States in permitting for multifamily and single-family housing since the start of the pandemic.
Wisconsin averaged 3.6 housing units per thousand people between 2021 and 2023, according to the report. Nationally, 4.7 units per thousand were permitted per capita over that time. Of the state’s 10 largest metros, Madison and Eau Claire were the only ones where permitting outpaced national levels.
In Milwaukee, new permits have been stagnant and below levels seen in the early 2000s for both single-family and multifamily housing.
“Wisconsin as a state, outside of Madison and a few small pockets, is not really growing very much at all,” Sommerhauser said. “That’s not surprising given population demographic trends.”
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