Despite a turbulent financial environment in 2023, multifamily starts surpassed expectations. According to current Yardi Matrix estimates, nearly 507,000 multifamily units started construction last year.
While full-year data is collected with a lag and is still incomplete, 2023’s construction starts would still rank third in recent years, after 2022 and 2021. Last year’s starts volume is 25.3% below 2022’s total. During the first three quarters of 2023, 454,182 units broke ground, an 11.6% decrease from the same interval in 2022, with Yardi Matrix explaining that the decline in starts began in the third quarter.
According to Yardi Matrix, several insights can be drawn from 2023’s data so far.
Single-family rentals and affordable housing both have become increasingly popular product types, comprising a larger share of the multifamily mix.
While the single-family rental product comprised less than 1% of all new multifamily construction in 2013, a decade later it increased to 5.8% of the share. In 2022, 32,599 single-family rental units started construction, a 1,246% increase over 2013. According to Yardi Matrix, 2023 is on track to surpass the prior year’s starts. Affordable housing comprised 8.4% of 2013’s multifamily starts and grew to 13.4% for 2023.
Yardi Matrix also found that, in many cases, markets with high levels of development in 2022 saw substantial declines in new construction starts last year. Half of 2022’s starts were in 22 markets. In the first three quarters of 2023, 18 of those markets saw starts decline compared with the same period in the prior year.
Indianapolis; Salt Lake City; Austin, Texas; and Seattle saw declines in starts of more than 40%, while suburban Atlanta, the Southwest Florida Coast, suburban Dallas, and Denver saw start declines of more than 25%. Additional markets with the highest declines were the San Francisco Bay Area-South Bay, down 72.4% from 2022; urban Chicago, down 55%; and Las Vegas, down 45.8%.
New construction continued its upward trajectory in 2023 in Phoenix; North Dallas; Raleigh-Durham, North Carolina; and Tampa-St. Petersburg-Clearwater, Florida. Several other markets saw starts increase, such as Boston, up 35.1% from 2022, and Kansas City, Missouri, up 41.6%.
Looking ahead, Yardi Matrix said it expects starts to continue to decline this year. It noted that its development pipeline data plateaued in 2023, with its prospective development pipeline remaining flat since April and planned development pipeline growth stalling mid-year.
“A declining pre-development pipeline combined with continued tight financial conditions suggests fewer projects will break ground in 2024,” said Yardi Matrix analysts. “However, the current under-construction inventory is at or near record levels. Even with a slowdown in new development, multifamily completions will remain elevated in 2024 and early 2025 and will not bottom out until 2026.”
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