The new apartment construction building boom- the biggest since the 1970s – while slowing somewhat is expected to continue until 2025, according to a new report from Rent Café.
“Our annual apartment construction report based on Yardi Matrix data shows that the number of deliveries is expected to remain high until 2025 when the echoes of the current economic headwinds will begin affecting construction as well,” the report says.
New apartment construction summary
- 460,860 new apartments are expected to open this year as New York metro emerges as the top builder with 33,000 rentals.
- 1.2 million new apartments were opened throughout the U.S. during the pandemic boom, with Dallas metro opening the most apartments during those three years (76,660 units).
- At the city level, Texas’ Austin and Houston topped the chart for most apartments built in 2020 through 2022.
- 60% of the new units built from 2020 to 2022 are accessible to only 41% of America’s renter population.
- Another 1 million new rentals are set to be completed through 2025, despite economic headwinds.
Why did this happen?
Households grew at a rapid rate after the pandemic as job growth boomed and young adults moved out of their parents’ homes.
At the same time, “work-from-home prompted renters to form their own households to gain more living space for offices, children and pets,” said Doug Ressler, senior manager of business intelligence at Yardi Matrix.
New apartment supply will drop in coming years
The supply growth is likely to go slower after the current round of projects is completed.
“Tightening of bank lending standards — combined with rising costs of construction materials, labor and land — has made new projects harder to pencil,” Ressler said.
“Construction debt starts at 8% interest, and most banks only lend 60% or less of the total cost of a project.
“Junior construction debt is even more expensive, with interest rates in the mid-teens. This financing structure can make it challenging for companies to initiate new construction projects unless they already have a substantial amount of capital on hand,” Ressler said.
The number of new apartments is expected to drop by 15% year-over-year — from 484,000 in 2024 to 408,000 in 2025 — with new completions bottoming out in 2026 at approximately 400,000 units. Then, according to Yardi Matrix estimates, the pace of construction is projected to gradually recover in 2027 and 2028. Read the full report here.