Less access to development capital has been the leading factor in the slowdown of apartment construction, according to Institutional Property Advisors’ (IPA) National Multifamily Construction Report. While the slowdown in building activity was anticipated, activity registered in 2023’s second quarter confirmed the expectation as starts fell to slightly below half the 2021 and 2022 norms.
“As access to development capital across the country diminishes and rent growth slows, multifamily starts are cooling,” states Greg Willett, first vice president and national director, research services at 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.”
According to the report, just over 1 million apartment units are under construction across the U.S., with most of the primary building centers in the Sun Belt as well as Washington, D.C; Los Angeles; Seattle; and Philadelphia. Starts in the 15-market core locations fell to 30,800 units in the second quarter of this year—a volume 52% off from the quarterly norm of 64,200 sustained for nine quarters from early 2021 through early 2023.
The most pronounced cooling in starts was in Texas. The number of units breaking ground in 2023’s second quarter fell 79% in Houston, 74% in Austin, and 67% in Dallas-Fort Worth compared with typical starts in early 2021.
Los Angeles (52%), Seattle (51%), and Atlanta (50%) fell within the average for pullbacks in construction, while second-quarter slowdowns were moderately less pronounced in Nashville, Tennessee (44%), Phoenix (43%), Miami (37%), Orlando, Florida (29%), and Charlotte, North Carolina (27%).
Although Phoenix saw a slowdown, the metro still ranked among North Carolina's Raleigh-Durham, Charlotte, and Dallas-Fort Worth at the top of the list for second-quarter starts, with all four metros having development begin on projects spanning 3,200 to 3,500 units. Raleigh-Durham is the one market that displays no slowing in new construction, the report notes.
Delivery volumes are expected to wane in early 2025 and then drop notably the second half of the year, IPA states. This coincides with expected prices increases during 2025 as well.
“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,” adds John Sebree, senior vice president and national director of the firm’s Multi Housing Division. “Price increases should prove robust during 2025.”