The recent sharp pullback in multifamily construction permits means fewer multifamily projects getting underway, Apartment List says in a new report.
While the number of multifamily units under construction peaked in late 2023 at a record level, and with nearly a million units still in the pipeline, this year is still on track to bring even more new inventory than last.
However, “the end of the current supply boom is already in sight. There has been a sharp pullback in the number of new multifamily projects getting underway, and that will translate to a slowdown in apartments hitting the market next year and beyond,” writes Chris Salviati, senior housing economist at Apartment List.
Developers have begun to pull back from investing in new projects as they look at both the continuing high interest rates and the steady decline in year-over-year rents since last summer.
Despite the pullback in permits, completions are still on the rise
While there has been a decline in new permits, it’s important to remember that obtaining a building permit is just the first step in new construction.
“It takes a long time for multifamily developments to get completed, and construction times have been getting even lengthier. In 2022, it took an average of 17 months for multifamily projects to go from construction start to construction completion (with an additional three-month lag between permits being issued and construction getting underway),” the report says.
New supply colliding with softening demand
The slowdown in rent growth and softening demand should continue in the near term., “Unless demand rebounds to levels solidly above the long-term average, it’s likely that rent growth will remain soft and that vacancy rates could continue to inch higher. These trends will be especially pronounced in the southern markets that are seeing the fastest housing stock expansion,” Salviati says.
“These conditions will not be indefinite, however. The pullback in new projects getting underway will eventually translate to a slowdown in new completions,” he says.
Read the full report here
