While the Census Bureau reports on multifamily construction starts at the national level, they do not supply data at the state or metro levels. A new report from Institutional Property Advisors (IPA) supplies more localized information.
Tracking the major markets
The report concentrates on the 15 most active markets for new multifamily construction. Combined, these metros account for about half of the total construction pipeline for the country. The number of multifamily starts in these 15 markets in Q2 2023 was only 52 percent of the average level for the previous 9 quarters.
“As access to development capital across the country diminishes and rent growth slows, multifamily starts are cooling,” stated Greg Willett, first vice president and national director, research services, IPA. “Among the 15 markets that account for over half of the nation’s ongoing apartment construction, building starts in the second quarter of 2023 totaled just under half the average volume recorded during the previous two years.”
The research report provides investors with the latest apartment construction research and analysis, including key findings such as:
- The largest declines are in Texas, with second quarter 2023 project initiations in Houston, Austin and Dallas-Fort Worth at less than one-third the earlier volume. Slowdowns are also pronounced in Philadelphia, Denver, and Washington, D.C.
- Pullbacks in new construction that mirror the average for the 15 markets under study are in Los Angeles at 52%, Seattle at 51% and Atlanta at 50%.
- Markets where the pullback in construction is somewhat slower to materialize are in Florida and the Carolinas. Raleigh-Durham is the single location in the analysis where apartment construction starts in Q2 2023 remained in line with the volume recorded in early 2021 through early 2023.
- Given that the typical apartment property takes 18 to 24 months to complete, delivery volumes should begin to wane in early 2025 and then drop notably during the last half of the year.
“Rent growth is likely to regain momentum as early as spring 2024, when the normal seasonal upturn in leasing velocity should coincide with obvious signs that today’s new supply excess is temporary,” added John Sebree, senior vice president and national director of the firm’s Multi Housing Division. “Price increases should prove robust during 2025.”
Considering other viewpoints
The IPA report finds a greater slowdown in starts in the 15 markets than the Census Bureau does for the country-as-a-whole. The Census Bureau reported that multifamily starts in July were down 13 percent from the average level in 2022 but down 32 percent from the peak level reached in April 2022.
Fannie Mae’s housing forecast currently estimates that multifamily construction starts in Q2 were down 5.3 percent from the average starts level for 2022. However, they project that the annualized starts rate will fall from 2022’s rate by as much as 29 percent by Q2 2024.
IPA is a division of Marcus and Millichap. The full IPA report is titled Pullback in Multifamily Construction Starts. It is available here.
