Fannie Mae examines multifamily construction pipeline

multifamily construction pipeline

The multifamily commentary that accompanied Fannie Mae’s monthly forecast for August reported on the number of units in the multifamily construction pipeline. In doing so, it used data from Dodge Data and Analytics (Dodge).

Starts are slowing

The report states that the number of multifamily units started peaked in Q2 2022 and has been falling since then. The reported number units started in Q2 2023 is about half the reported number of units started in Q2 2022. However, the number of units started in Q2 2023 is in line with the quarterly starts levels seen from late 2015 through late 2019, so the high level of starts in 2022 is more out-of-the-ordinary than is the lower level of starts seen recently.

Note that the sharp drop in starts reported by Fannie Mae is not reflected in the starts data from the Census Bureau. The Census Bureau’s latest figures indicate that multifamily construction starts fell only about 6 percent from Q2 2022 to Q2 2023.

Completions expected to surge

Despite the slowdown in starts, Dodge predicts that the number of multifamily units completed in 2023 will vastly exceed the numbers completed in recent years. While 2022 saw strong completions performance with 479,000 units completed, Dodge has identified 730,000 units under construction with anticipated completion dates in 2023. However, completions through the first two quarters are running only slightly above last year’s pace, so a large uptick in the rate of completions will have to be seen over the last two quarters if this level of completions is going to be reached.

This forecast is more optimistic that one put out recently by Yardi Matrix. That forecast predicted that 485,000 units will be completed in 2023 and that the highest number of annual completions for this cycle will occur in 2024.

Location, location, location

Fannie Mae reported on the multifamily construction pipeline in terms of the number of units “recently completed and underway”. The recently completed units are those completed in 2022 and the first two quarters of 2023. The units underway may have completion dates beyond 2024.

The leader by far for units recently completed or underway is New York City with 150,000 units. Of these, 100,000 are still underway. The next highest number is in Dallas with 74,000 units recently completed or underway. Of these, more than 50,000 are still underway. Austin, Washington D.C, Houston and Atlanta also have 50,000 or more units recently completed or underway.

When looking at multifamily units underway as a fraction of existing inventory, Dodge identified 4 metros with more than 12 percent of existing inventory in the pipeline. They are Austin, Nashville, Salt Lake City and Colorado Springs. However, Fannie Mae expressed confidence that these metros would be able to quickly absorb the new supply because of their high rates of growth in population, jobs and households.

The report notes that most new supply is concentrated in the Class A market segment. It anticipates that this new supply will but downward pressure on Class A rents relative to Class B rents.

The full report is available here.