Construction starts sunk in recent months as turbulence hit supply and demand in the multifamily market and construction financing gets harder to secure.
In June, there were an annualized run rate of 477,000 apartment units in the starting phase of construction, according to U.S. Census Bureau data reported by Commercial Real Estate Direct. The figure marks a 16.5 percent drop from the previous month and the first time the annualized run rate has sank below 500,000 units since December.
The Census Bureau defines the start of construction as the beginning of excavation for footings or a foundation.
A primary cause of the construction start drop is the difficulty facing financing for projects. As interest rates have ticked upwards over the last year and a half, developers have struggled to find ways to fund projects. The loss of certain tax incentives, such as one in New York, have only added insult to injury.
A recent survey of 30 apartment developers conducted by the National Multifamily Housing Council in June found 62 percent of respondents found their projects were no longer economically feasible, while 62 percent claimed the availability of financing — or lack thereof — was impacting projects. Last June, those polls stood at 38 percent and 15 percent, respectively.
Business research firm Capital Economics projects 300,000 units will come online this year and 325,000 units next year, both of which would exceed the standing record.
But completions are expected to fall in 2025 as the softening market catches up to developers, the firm predicted.
Demand for units has started to wane this year. In the spring, the pendulum in landlord-tenant pricing relations began swinging back in favor of residents. Tenants reached a breaking point in what they would be willing to pay, resorting to moving to cheaper markets or finding more roommates, including their parents. Zumper’s latest report found the national median rent for a one-bedroom home rose a mere 1.6 percent year-over-year, the smallest annual increase in more than two years.
