Rising interest rates and market saturation are causing multifamily builders to slow progress on new projects, according to a report released Tuesday by Redfin. Between 2021 and 2023, builders in the United States applied for an average of 18 permits to build multifamily housing per 10,000 people, but as of May 2024, that number had dropped to an average of 13.
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Rising interest rates and an already saturated rental market have led to a 30% drop in multifamily building permits compared with the past three years, according to a report released by Redfin on Tuesday.
Between 2021 and 2023, builders in the United States applied for an average of 18 permits to build multifamily housing per 10,000 people. permits and are not included in the U.S. Census Bureau’s multifamily housing data.
“Rising interest rates are making it more expensive to borrow for construction projects,” the report said. “Due to the construction boom in recent years, the number of new multifamily properties entering the market has reached near-record levels, making it difficult for some owners to find tenants.”
Although permitting numbers are below the 10-year average, the report said the number of completed projects is still at an all-time high as projects that were permitted between 2021 and 2023 were just completed. The increase in multifamily inventory has created fierce competition for tenants, with less than half (47%) of new apartments opening in late 2023 finding tenants within three months.
Sheharyal Bokhari Photo credit: Redfin
Redfin senior economist Sheharyar Bokhari said the abundance of choice has given way to slower rental growth. Asking rents increased just 0.8% annually in May, well below the 18% annual increase a few years ago. Even as growth slows, median rent is still at its highest level since 2022 ($1,653).
“Potential tenants should be aware that now may be a better time to sign a lease,” he said in the report. “Once all the new apartments coming to the market are filled with tenants and there is no longer as much supply, landlords may Rents are starting to go up again, and that could happen in a year or two.”
Despite a nationwide economic slowdown, builders in Texas and Florida are bucking the trend.
Builders in Cape Coral, Fla., received permits to build 27 multifamily units per 10,000 people this year, the highest level among the 79 markets studied by Redfin. Austin, Texas (21); Greensboro, North Carolina (20); North Port, Florida (18); Omaha, Nebraska (17); Nashville, Tennessee (15); Tampa, Florida (14) ; Orlando, Florida (13); Dallas (13) and Columbus, Ohio (12); round out the top 10.
Meanwhile, Stockton, Calif., issued zero permits in the first five months of 2024. Traders are in the same situation, with zero licenses. Builders in El Paso, Texas; Baton Rouge, Louisiana; Cleveland, Fresno, California; Detroit, Dayton, Ohio; New Orleans faring slightly better in 2024 Multifamily building permits were issued within the first 5 months.
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