The Multifamily Pipeline is Massive, Here’s What to Expect into 2024

Multifamily construction is at record highs but with higher debt costs; expect that to slow markedly into 2024 and beyond.


Main Takeaway: The construction pipeline for multifamily is full, with record starts and completions. With rising debt costs, expect the market to decelerate.

Story: According to government data, multifamily starts dropped 19% monthly to a seasonally adjusted annual rate of 473,000 units in December. Doug Duncan, the chief economist at Fannie Mae, commented on this data what is in the forecast for the remainder of 2023:

“Multifamily permits were up 5.3 percent to a seasonally adjusted annual rate of 600,000, but, despite outperforming single-family building in 2022, we expect multifamily construction to end 2023 at a much slower pace as higher interest rates weigh on financing costs and rent growth continues to slow.”

The two primary drivers of this slowdown in multifamily starts include higher debt costs and growing inventory. For loans, rates for construction debt have always been high but are even more expensive now as rates have ticked up over the past year. According to the U.S. Census Bureau, multifamily completions are at record levels, showing some room for decline as higher debt costs settle into the market.

Delays resulting from supply chain woes and lingering pandemic lockdowns mean that there is still a record number of multifamily developments in the pipeline. According to Paul Bergeron of Globe St, about 1 million apartments are under construction, the highest number since 1974 and a 24.9% increase year-over-year.

According to NAHB AVP for forecasting and analysis, Danushka Nanayakkara-Skillington:

“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…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.”

We could be entering an oversupply scenario that will put downward pressure on asset values and rents, according to a new report from CBRE. They forecast that over 700,000 multifamily buildings will hit the market over the next 24 months, the most seen since the 1980s.

As you can see, CBRE predicts a marked slowdown in deliveries as we enter 2025; however, until then, we will likely see continued supply coming on the market as the pipeline of new units delivers. Following a low point of 97,600 annual multifamily construction starts in 2009, building activity has consistently risen, increasing in 10 out of 13 years.

Finally, the latest NMHC survey found that apartment construction delays and cost increases are declining from their post-pandemic peaks. Delays are still common, with 79% of builder respondents reporting delays, down from 84% in December and 97% percent in June 2022.

Expert Take on Multifamily Construction Pipeline

“Even with a surplus of multifamily units over the short-term, CBRE forecasts that an additional 2.3 million new units will be needed nationwide to maintain healthy market fundamentals over the next 10 years. Once the largest portion of the delivery wave has concluded in 2024, the nation will still need nearly 200,000 additional units annually to maintain proper supply and demand balance. While a development surplus this year may weigh on near-term market fundamentals, it ultimately will lay the foundation for a healthy market throughout the next cycle.”CBRE

“The outlook for new multifamily construction in 2023 is mixed. The National Association of Home Builders projects that multifamily starts will slow by about 28% in 2023 before stabilizing in 2024. Still, there are reasons to believe the 2023 pipeline will retain some momentum, with increased attention on affordable housing projects and the normalization of building material prices creating hopeful tailwinds.” Chandan Economics

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