According to the National Association of Home Builders (NAHB), multifamily starts are predicted to fall in 2023 after an unsustainable high level of production in 2022. Last year, multifamily construction boomed, up an estimated 15% from 2021. After exceeding a 500,000 annual pace, the NAHB is projecting that multifamily starts will fall by 28% this year to a total of 391,000 total and will stabilize in 2024 at roughly 374,000 starts.
At a press conference held during the NAHB International Builders’ Show (IBS) in Las Vegas, NAHB assistant vice president for forecasting and analysis Danushka Nanayakkara-Skillington said, “Slowing rent growth, rising unemployment, tightening commercial real estate financing conditions, and a substantial amount of supply in the construction pipeline have caused a large backlog of multifamily developments.”
Currently, there are 943,000 apartments under construction. Up 24.9% compared with a year ago, this is the highest count of apartments under construction since 1974.
Measured by the number of permits, Nanayakkara-Skillington shared that eight of the top 10 multifamily markets posted yearly increases from November 2021 to November 2022. Atlanta-Sandy Springs-Roswell, Georgia, had the highest increase at 203%, and the largest market, New York-Newark-Jersey City, registered a 9% increase in permits.
Dallas-Fort Worth-Arlington, Texas; Houston-The Woodlands-Sugarland, Texas; Los Angeles-Long Beach-Anaheim, California; Washington-Arlington-Alexandria, D.C.-Virginia-Maryland-West Virginia; Phoenix-Mesa-Scottsdale, Arizona; and Minneapolis-St. Paul-Bloomington, Minnesota-Wisconsin, also posted permit increases. Austin-Round Rock, Texas, and Seattle-Tacoma-Bellevue, Washington, posted declines compared with 2021.
Referencing research conducted by NAHB and the National Multifamily Housing Council, Nanayakkara-Skillington shared at a Multifamily Housing Market Outlook session at IBS that regulations make up 41% of multifamily development costs. Noting that costs when site work begins, development requirements beyond the ordinary, fees charged when building construction is authorized, and changes to building codes over the last 10 years contribute largely to development expenses.
“Apartment and condo developments can be subject to a significant array of government regulations including zoning requirements, building codes, impact fees, permitting requirements, design standards, and public land requirements, among others,” said Nanayakkara-Skillington. “These regulations are exacerbating the nation’s housing affordability crisis.”
