While single-family permitting is growing at a steady pace across the country, multifamily permit numbers are trending downward, according to the National Association of Home Builders’ Home Building Geography Index for the second quarter of 2024.
The NAHB attributes this slowdown to the impact of tightening financial conditions on the new development market, among other factors. “Multifamily construction continues to slow as builders deal with higher rates, a shortage of workers and supply chain concerns for some building materials,” said Carl Harris, chairman of the NAHB, in the report.
While these concerns also affect single-family, pent-up demand and a lack of resale homes are keeping single-family permitting afloat.
“The strength in single-family construction at the start of the year continued in higher-density areas, matching other data indicating a gain for townhouse construction at the start of 2024,” said NAHB Chief Economist Robert Dietz.
The recent multifamily slowdowns follow a record high of new apartment construction. Over 900,000 new units are underway, the most at once since 1973.
| County type | Share of multifamily construction in Q4 2024 | YOY construction growth in Q4 2024 |
|---|---|---|
| Large metro - core counties | 40.14% | -10.67% |
| Large metro - suburban counties | 25.31% | -18.38% |
| Large metro - outlying counties | 3.5% | -0.08% |
| Small metro - core counties | 22.84% | -16.18% |
| Small metro - outlying counties | 4.13% | -0.23% |
| Micro counties | 2.98% | 22.91% |
| Non-metro/micro counties | 1.05% | -24.17% |
SOURCE: NAHB
The HBGI, a quarterly measure of building conditions across the country, uses single- and multifamily permit information to gauge housing construction growth and trends across urban and rural geographies.
All but one of the index’s geographic regions posted negative year-over-year multifamily construction growth in the second quarter. In the Large Metro Core Counties geographic subset, where 40.1% of multifamily construction is taking place, permits have fallen by 10.67% YOY. Core counties in small metros make up the next-largest share of construction at 22.8%, with a 16.18% drop in permits YOY.
The only geography where construction has risen YOY is Micro Counties, which make up 2.98% of the market. Multifamily development has risen 22.91% in these markets YOY, and 95.22% — nearly double — on a quarterly basis.
The U.S. needs 4.3 million new apartment units by 2035 in order to mitigate issues related to apartment demand and affordability, according to an August 2022 report commissioned by the National Apartment Association and National Multifamily Housing Council.
Higher borrowing costs have made it more difficult for developers to start new projects over the last several years, beginning in late 2022 when the Federal Reserve began raising interest rates to combat inflation. This may drive developers to focus on lower-risk projects or shift toward stronger markets for development, according to a report from RentCafe.
“Most markets won’t see the impact of rapidly falling starts translating to lower completion levels until the second half of 2025, and more likely in 2026,” Doug Ressler, senior analyst and manager of business intelligence at Yardi Matrix, RentCafe’s parent company, said in the report. “All said, this massive drawdown in starts across all regions sets the stage for a very different industry trajectory come 2026 and 2027.”
