According to recent data from the U.S. Census Bureau, multifamily construction starts have decreased by 12% compared to the same period in 2022. While this may not seem significant given the current housing shortage, RealPage’s senior vice president and chief economist Jay Parsons disagrees with these findings and believes that there has actually been a decline of around 40%.
Parsons points out several reasons for this larger decrease in apartment construction starts. One factor is that private-sector data providers such as RealPage and Yardi Matrix track individual projects from planning to completion, providing a more accurate picture than the small sample used by the Census Bureau.
Another contributing factor is a decline in demand for architects specializing in multifamily residential projects. According to information from the American Institute of Architects (AIA), there have been 15 consecutive months of declined billings for these types of projects.
Additionally, lack of available construction financing has also played a role in slowing down apartment development. The National Multifamily Housing Council reports that due to limited financing options, many developers have had their projects delayed or put on hold.
Furthermore, according to Parsons’ analysis of data from Federal Reserve’s Senior Loan Officer Survey , lending standards for new constructions have become stricter across most lenders.
Overall, these factors suggest that it may take some time before we see an increase in multifamily construction starts again. In fact,
Parsons predicts elevated deliveries through next year followed by lower supply due to slower growth rates until at least 2026 when conditions are expected improve again.
In conclusion,
it seems unlikely that we will see any significant acceleration before then unless interest rates drop significantly or other market conditions improve drastically.
Investors are currently finding more attractive opportunities investing into existing properties rather than ground-up constructions which could result
in fewer deals being made available.
Despite this slowdown,
the demand for apartments continues
to rise rapidly causing concerns about future supply shortages.
Developers will need to see a combination of factors such as lower interest rates, stable or rising rents, and more favorable market conditions in order to reinvigorate the construction industry.
