Housing starts have collapsed in percentage terms, but this will still be a record year for multi-family housing completions. What does it mean?
Will Multi-Family Construction End With a Whimper or a Bang?
ApartmentList economist Chris Salviati discusses the last wave of the Multi-Family Construction Boom and its Impacts.
Following a period of record-setting rent growth, the national median rent has since dipped slightly from its late 2022 peak. One of the key factors in this rapid cooldown has been a surge of new apartment construction adding supply to the market. 2023 saw the most new apartments completed since the 1980s and the number of multifamily units under construction peaked late last year at a record level. With nearly a million units still in the pipeline, this year is on track to bring even more new inventory than last.
Looking further ahead, though, the end of the current supply boom is already in sight. There has been a sharp pullback in the number of new multifamily projects getting underway, and that will translate to a slowdown in apartments hitting the market next year and beyond. This report breaks down the latest data on multifamily construction trends and explores what it can tell us about where the rental market is headed.
Total Multi-Family Housing Permits
On one hand, we’ve seen an abrupt slowdown in apartment construction activity. But on the other hand, when viewed over a longer horizon, current permitting levels remain fairly robust even after the decline. If 2024 does end with 525 thousand units permitted, as the year-to-date trend suggests, that level would be 26 percent below the 2022 peak, but it would still be 9 percent higher than the 2015 to 2019 average and higher than any year from 1987 to 2022.
Completions Still Rising
Despite the pullback in permitting, completions are still on the rise. It takes a long time for multifamily developments to get completed, and construction times have been getting even lengthier. In 2022, it took an average of 17 months for multifamily projects to go from construction start to construction completion (with an additional three month lag between permits being issued and construction getting underway).
Because of the lengthy construction time for multifamily projects, the slowdown in permitting activity has not yet translated to a slowdown in units hitting the market. Rather, the multifamily projects getting completed today are largely those that got started during the permitting boom of a couple of years ago.
Completed Units
Even though permitting activity has been slowing for some time, we’re only now hitting the peak of new supply hitting the market. The number of multifamily units under construction peaked in late 2023 at over a million, an all-time record. More recently, the number of units under construction has been gradually declining as the number of completions has begun to outpace the number of new units being issued. But even after the recent decline, the number of units still in the pipeline (919K) remains higher than at any point in history before the recent peak.
Austin Leads the US
Austin, TX serves as the prime example of the construction boom – the metro has led the way for multifamily permitting per-capita for seven years running. In 2023, 9.2 new multifamily units were permitted in the Austin metro for every 1,000 residents. For comparison, Austin’s pace of multifamily permitting last year was 61 percent higher than that of the second-ranked metro (Raleigh, NC) and 31 times greater than that of the metro with the slowest pace (Birmingham, AL). Austin is currently on pace to see a dramatic pullback in permitting in 2024 – but even with that pullback, Austin is still on pace to log the most new permits-per-capita this year.
Austin’s rental market is also illustrative of the impact that increased supply can have on prices. We estimate that rents in the Austin metro have dipped by 7 percent year-over-year, the sharpest decline of any large metro. This dip in rent prices is taking place even as the metro continues to experience strong demand, as the rapid pace of new construction has more than kept pace with the influx of new renters to the area.
Note that ApartmentList price comparisons are for new leases as opposed to renewed existing leases.
This issue has led to many bad assumptions and reports for at least two years that “rents are falling” when they haven’t been.
However, I do believe that after 32 consecutive months of rents rising national at least 0.4 percent per month, some good news is finally on the horizon.
Looking Ahead
The influx of new apartment inventory this year should result in a continuation of the market conditions that defined 2023, when increasing levels of new supply collided with softening demand, leading to a rapid slowdown in rent growth and increasing vacancy rates. Looking ahead to the remainder of this year and into next, we expect that these conditions are likely to persist. Unless demand rebounds to levels solidly above the long-term average, it’s likely that rent growth will remain soft and that vacancy rates could continue to inch higher. These trends will be especially pronounced in the southern markets that are seeing the fastest housing stock expansion.
Rising at 0.4 percent per month, for 32 month, rent growth is not exactly soft. But it is much softer than before, down from increases sometimes near 1.0 percent.
Looking Further Ahead
These conditions will not be indefinite, however. The pullback in new projects getting underway will eventually translate to a slowdown in new completions. We expect that 2024 will be the peak for new apartments hitting the market, and that next year will see fewer completions. When this happens, demand could begin to outstrip supply again, leading to tighter market conditions. The prevailing conditions in the rental market are currently bringing some much-needed relief to renters, but over the medium term, those winds are expected to shift.
Thanks Chris!
Missing Discussion Points
Missing from above discussion are many points regarding demographics, immigration, and interest rates.
First we have a huge ongoing wave of illegal immigration. This impacts current housing demand.
The second large factor is the eventual die-off of tens of millions of baby boomers. At what speed will that happen?
Third, I presume Trump will win but that’s not certain. Nor, despite all the bluster, can we say for sure how fast Trump can stop the immigration wave if he is elected.
Fourth, stopping the immigration wave is one thing, deportations are another. Where are deportations headed and how fast?
Fifth, what happens to interest rates?
What finally cooled construction is a big set of rate hikes by the Fed. Where are interest rates and mortgage rates headed?
Finally, what about recession?
Looking too far ahead is fraught with too many potential errors, but short term we can see a huge wave of completions on the horizon.
There are too many moving pieces, including a potential recession, that prohibit looking further ahead.
It will take a miracle for the Fed, the next president (regarding immigration), and the homebuilders to all get this right. Mistakes will be costly.
I live in Irvine, CA. It used to be real nice. But the rampant construction of apartments has led to overcrowding, traffic congestion, vandalism and petty crime. Fortunately, murders are very rare, only a handful in a population around 300K. Most seem to be honor killings among our diverse population. Any new apartments have to have a fraction allocated to affordable housing.
Nice while it lasted.
Honor killings. Sounds like you have a Klingon problem!
Mish,
We’ve discussed this issue before, but how about a graph depicting “The Case of the Missing Completions” (the vanished homes that get permitted but apparently never show up in completions).
This looks to be a major problem since at least 2015 and eyeballing it, it looks like maybe 30% of permitted properties somehow go “poof” despite the monster costs that would seem to be implied by letting a permitted property go undeveloped for years and years.
The two bar graphs above present the gross permitted/completed stats but a *third* graph (subtracting completed from permitted) would really highlight this crucial issue (permitted houses that never get completed are worthless in terms of reintroducing price reality to the market and suggest toxic gaming/measurement in the permitting process).
Obviously it takes a lengthy period to go from permitting to completion (as the other chart shows) but simply using same year or 1 lagging year subtractions would be close enough to illustrate this major, major undiscussed problem.
It would be worth a post of its own and would likely get a ton of in-links from the broader internet.
I went ahead and totaled all the permitted and actually completed multifamily units from 2012 through 2023.
The “vanished” completions level is pretty mind boggling, scary, and profoundly disturbing in terms of suggesting yet another measurement/policy failure of epic proportions by a federal government with trillions and trillions of dollars at its disposal.
5.9 million multifamily permitted.
3.9 million actually completed
About a 33% (!!!) “evaporation” rate – which is almost inconceivable, both in terms of economics and/or measurement failure.
There is a moderate possibility that “completion lag” might make this horror show mildly better…perhaps the now-doubled construction completion lag might bleed a fair number of completions into 2025 even as permits crater in 2024/25.
But that lag effect is not going to come anywhere close to covering 2 *million* (*million*) vaporware completions from the preceding 12 years.
This is profoundly disturbing on so many levels and I’ve never heard a single squeak from anybody about it.
It is inexcusable that in the era of the internet, utterly garbage/horrifically misleading stats (housing permits, unemployment rate, etc.) are still promoted as meaning anything.
And here is another idea for a future post – the deeply, deeply weird pattern of rent spiking post pandemic in terms of metro areas.
Historically, coastal rents were insane and almost every place else fairly reasonable (as in 1/3 to 1/4 the coastal rents).
But somehow the pandemic rent inflation horror show has zoomed *almost every nationwide metro* – despite whatever coastal exodus (long, long predicted but only to be really realized in pandemic) not being nearly enough to spike rents in 280+ other US metros.
And yet we’ve seen previously normal “flyover” metros go from 1/4 of coastal rates to 1/2 or worse. How exactly does that work in supply/demand terms?
Check out this list of post-pandemic rent-zooming metros and ask if the percentage surges really make any sense across a ridiculously wide swath of American metros.
U.S. metro areas with the biggest 1-bedroom rent increase since 2019 (cnbc.com)
Paris-like Knoxville up 56%.(in 4 years)
Sunny Dayton up 44%
Balmy Providence up 37%
Bikini Beach Lansing 36%
Celebrity Playground Tulsa 34%
Vibrant Allentown (hat tip Billy Joel 40+ years into Allentown boom..) 33%.
And my sense is that these reported spikes are low – but in any event it is almost impossible to explain inflation justifying rent spikes in over 100 other retiree-irrelevant metros.
You would have to lack a pulse to not smell a rat somewhere.
And sunny Dayton still has not recovered the jobs it had in March 2020 – yet rents are supposed to be up 44%
Small Markets Yet to Recover from COVID-era Job Loss | RealPage Analytics Blog
How does less than zero job growth in Dayton (for over 4 years) exist in the same universe as a 44% rent *increase*.
Something very, very, very strange is going on.
And not just in Dayton
The California Dream for All Shared Appreciation Loans program that launched last March by the California Housing Finance Agency offered qualified first-time home buyers with a loan worth up to 20% of the purchase price of a house or condominium.
The loans don’t accrue interest or require monthly payments. Instead, when the mortgage is refinanced or the house is sold again, the borrower pays back the original amount of the loan plus 20% of the increase in the home’s value.
The original program was established in an effort to help low- and middle-income individuals buy a home, but the program doesn’t address eligibility based on immigration status, Arambula said.
If Assembly Bill 1840 is passed, it would broaden the definition of “first-time home buyer” to include undocumented immigrants.
HOME Investment Partnership Program (HOME)
HOME is a federal block grant to about 640 participating jurisdictions (PJs), which are states and certain localities that use the funds to provide affordable housing to low- and moderate-income households. States and localities use the funds for a variety of homeownership and rental activities, including building new housing, rehabilitating existing housing, and providing tenant-based rental assistance (TBRA).
HOME assistance that is non-cash disaster relief, necessary for the protection of life and safety, and/or administered by a nonprofit charitableorganization is available to undocumented immigrants and immigrants without eligible status.
Community Development Block Grants (CDBG)
The Community Development Block Grant (CDBG)
program is a federal program intended to strengthen communities by providing funds to improve housing, living environments, and economic opportunities, principally for people with low- and moderate-incomes.
CDBG funding does not have specific immigration status eligibility requirements.
U.S. Department of the Treasury’s Emergency Rental Assistance Program
Treasury’s Emergency Rental Assistance program (ERA) has provided communities over $46 billion to support housing stability throughout the COVID-19 pandemic.
The law establishing the ERA program does not impose restrictions based on immigration status.
How about the Federal Government stop jacking around with interest rates, having destroyed them for 20 years, causing (twice) the worst phony asset booms in housing in US history.
Then we won’t need *more* bullsh*t Government programs diddling at the edges of the catastrophes the Government itself created.
How about that?
“The loans don’t accrue interest or require monthly payments. Instead, when the mortgage is refinanced or the house is sold again, the borrower pays back the original amount of the loan plus 20% of the increase in the home’s value.”
If this is true (no interest on the loan and you don’t have to actually make monthly payments) then:
1) Why would you ever refinance since you pay 0% interest
2) Why would you ever make a monthly payment if you don’t have to (ie you live there rent/mortgage free)? In fact you’d never want to move either for that same reason (nor would your descendants since they too would have a free place to live).
Something isn’t right in what you wrote or how it was explained in the article.
Here’s the link to the story. Perhaps the interest builds on the loan, sot of a balloon when sold? link to latimes.com
How Many Millennials Will Be Rich Enough to Buy the Boomers’ Millions of Unaffordable Bungalows?
Absent demand from tens of millions of wealthy, high-income buyers, asset valuations will fall as Boomers sell off assets to fund their retirement.
There’s a peculiarly flawed logic behind the widely held view that the Baby Boomers will seamlessly transfer tens of trillions of dollars of their wealth to the Gen-X and Millennial generations as they exit stage left.
This is flawed for a very basic reason: the extremely overvalued assets that will be transferred–real estate and stocks–only reached such extreme overvaluation because there is a surplus of buyers who are sufficiently wealthy (and willing) to pay bubble-inflated prices.
Since the ownership of both real estate and stocks is concentrated in the hands of the wealthiest 10% who tend to be older, how many Gen-Xers and Millennials have the means to buy million-dollar bungalows and overpriced portfolios? If buyers are scarce due to entrenched wealth-income inequality, then once Boomers start selling their vast holdings of stocks and millions of overpriced homes, prices will plummet if sellers outnumber qualified and willing buyers.
link to charleshughsmith.substack.com
Tell this to those who are flush and don’t give a f789 about the fact that most people under 30 can barely make rent and put food on the table… cuz that’s the market for their overpriced homes at some point
That article has some things wrong. What Chuck leaves out is the fact that 90% of the wealth is controlled by less than 10% of the population. Not all boomers have wealth, in fact about 45% have no savings at all. The median boomer savings rate isn’t much better.
link to businessinsider.com
The wealthy boomers (top 1%) own multiple homes and rental properties and those are the ones that get counted as passing onto many people when in fact they will just be passed on to a select few. Most of this group has no reason to liquidate their holdings for extended care or medical, they are rich enough to get by fine.
Repeating what I wrote above since you repeated the post as a new discussion topic.
I like Charles but he’s arguing against himself in this article.
He says Boomers have the assets and money and how can Millennials afford to buy their stuff from them? Then in the next sentence he says they are going to draw down those assets to fund retirement (including nursing homes or home nursing aid etc). Well, guess who those nurses and other workers who provide the services for the Boomer retirement are? They are those very Millennials.
So the money will be transferred either via inheritance (one large chunk) or via Boomers spending it on goods/services in retirement (many smaller chunks). Plus all the 401Ks, public and private pensions etc buy stocks/bonds every month repeatedly so younger workers are buying up all the stocks/bonds Boomers are selling off. So anyway you look at it, its getting passed down to younger generations. It doesn’t just magically disappear into the ether.
Boomers have a lot of assets, but they also have a lot of debt.
Only the **NET** amount will get inherited by someone, and given the $35 trillion federal debt outstanding and the number of immigrants in the elderly care nursing industry … that someone is not going to be Gen X or Millennials born in the USA (at least not as a whole).
A few might get lucky, but most will be disappointed at how little their parents are passing down after repaying a lifetime of debt accumulation.
Millennials don’t have to. Investment companies will, and rent to the perpetual renters.
The boomer homes becoming available will gradually improve the situation. Many of these homes also need repairs and updating which will spark a home improvement windfall but like Mish stated, who knows the pace of it. One tricky part is boomers have kids and kids more often than not squabble over assets, sometimes for a decade or more.
At some point there won’t be enough with the money to buy these homes… cuz of the massive wealth disparity between generations link to charleshughsmith.substack.com
I like Charles but he’s arguing against himself in this article.
He says Boomers have the assets and money and how can Millennials afford to buy their stuff from them? Then in the next sentence he says they are going to draw down those assets to fund retirement (including nursing homes or home nursing aid etc). Well, guess who those nurses and other workers who provide the services for the Boomer retirement are? They are those very Millennials.
So the money will be transferred either via inheritance (one large chunk) or via Boomers spending it on goods/services in retirement (many smaller chunks). Plus all the 401Ks, public and private pensions etc buy stocks/bonds every month repeatedly so younger workers are buying up all the stocks/bonds Boomers are selling off. So anyway you look at it, its getting passed down to younger generations. It doesn’t just magically disappear into the ether.
Often, the kids cannot afford to improve the homes they inherit. They’re either foreclosed on, or sold “as is” – depends on if the kids can pay the house’s bills until a sale.
OT. As I had predicted we would see something big from Rusisa or China this summer. Russian ships with hypersonic missiles are now about 90 miles off the coast of the US.. I predict they will also soon be in other places the US never expected. Ithink all of is a prelude to a broader issue come election day in the US. Prepare for blackouts and power outages Ukraine style. Those in the security community know Chinese hackers are ready to take out the US grid. I had told friends and family earlier this year that there would be some.type of coordinated cyberattack on election day in 2024. Don’t say you weren’t warned.
Is that before or after the civil war? I need to know which war is happening when to plan accordingly.
Civil unrest is definitely in the cards.
The divisions domestically are to just cause more confusion and distrust. Jan 6th was partially paid for by a company created by a Russian oligarch.
Company and Oligarch name please.
The median age of baby boomers right now is about 65.4 and we know all baby boomers will be over 65 by 2030 pushing median age to 71.4 in 2030.
If 5000 boomers die each day then by 2030 there will be 2029 days x 5000 = 10,145,000 boomers gone. We can assume another few million will be in nursing homes so let’s say 12m total of new vacant housing.
The issue though is some states are more top heavy boomers than others. Florida is heavy, Utah is light so there will still be housing imbalances depending on where people choose to live.
Another thing to consider, with great irony, is how many boomers will cash out of USA and move to lower cost countries in Latin America or Asia. I already have one retired couple friend move to Malaysia because of the lower cost of living and better (for them) lifestyle. I know of at least half a dozen couples planning on living elsewhere too and most aren’t even boomers.
And I doubt Trump does anything but superficial grandstanding on immigration just like he didn’t build a wall or kick anyone out or do anything but token changes to fool the clueless voter but maybe he’ll do something in his third or fourth term after he proclaims himself King of America.
That’s me. I’m heading to South America. The key is having a support system (in my case, the spouse’s family) in the new country.
Forget what I said about Trump winning….looks like he’s losing the young vote.
link to newsweek.com
a new poll has given President Joe Biden the edge over former President Donald Trump when it comes to younger voters, with a 25-point difference among those ages 18-29.
I assume those renters aren’t answering polls given they have to work three jobs and all…
Dude, Newsweek is a propaganda rag. Young voters are paying the dearest for Bidenomics. Rents alone are killing them plus they work more than one job. It’s always economics.
What makes something propaganda or factual in the eyes of the reader are the reader’s individual confirmation biases.
Keep that fantasy going because it’s all the democrats have
There is something called congress. Trump did his part of building the wall but Paul Ryan, the leader of the house would not allocate money for the wall. When Trump tried to reallocate funds from the military budget, the courts shut him down
And how will it be different next time?
When he’s 95 yrs old, lol
Actually something closer to 9000 deaths a day in the USA (in 2022 there were 3.27 million deaths or 8958 a day).
But your math says 12 million deaths equals 12 million housing units which means you assume 1 person per home/apartment etc. That’s obviously not right.
What you also aren’t looking at is how many people turn 18 year each year and technically replace those who died that year in terms of new housing (either as students or moving out on their own as working adults). If the number of people turning 18 matches the number dying then the need for housing shouldn’t change much due to boomer deaths.
When it’s really going to matter is 10 years after that, say 2040 when Gen-X starts dying off in droves because that’s a small cohort population wise and so the number turning 18 will definitely exceed the number dying and then there will be a serious imbalance (shortage).
You can’t do a one-to-one comparison because the Boomers own much more of the wealth. It’ll take multiple Zoomers turning 18 to offset one departed Boomer in the economy.
In central Florida, there has been a building boom of both single-family and multi-family units. These are major planned urban developments….massive. Not sure where everybody is coming from to fill these units. I have read recently that the condo market will be prone to breaking down soon, especially if you live in an older complex. Since the Surfside condo collapse, new laws were implemented that required older buildings to be inspected & certified as safe by engineers.
On top of that, special assessments are being mandated to have a substantial contingency fund to cover future major structural repairs. Some of the current assessments here in the Orlando area are over $20K per unit. Those on fixed incomes will be trying to get out of their properties. I know that this is already happening in the Miami/Ft. Lauderdale area.
Here is a website that has quite a bit of info on multi-family if you scroll around a bit…
link to multihousingnews.com
Long on idealism, short on practicality.
But once the developer sells the units, its not his problem to make it work in the medium term
And the fewest number of available hotel rooms in blue megalopolises.
Maybe I missed it … but when we talk about lower permitting going forward … is that less permit applications … or less applications being OK’d by planning boards?
As for your comment that there are too many factors to go too far out … you would never make it as a climatologist. They make absurd predictions all the time as if they had an understanding.
Build more at the low tide water line, and when the tide comes up blame global warming.
Anyone who points out the tide has been coming in for millenia gets labeled “literally the next Hitler” and “homophobe” and “right wing extremist” and “persons who do not listen to NPR nor MSNBC”.
How many of these global warming, illegal alien infested multi-family buildings are being constructed on Martha’s vineyard next to Obama’s house? How many are being built in senile Joe’s Delaware beach community?
And why are Obama and Biden so heavily invested in locales that Al Gore assures us will be underwater no later than 2012?
Trust the science and sell your beachfront property to Obama and Biden and Gore on the cheap!!!
Applications. I don’t think too many planning boards have changed very much, and when they do it’s often to allow more density not less.
Hey Mom! Im home! Forever!
At least you got to leave.
Many never have left their parents basement 🙂
@mish: “…this will still be a record year for multi-family housing completions. What does it mean?”
Can’t say what it means nationwide, but in Connecticut it means overworked sewer systems and overcrowded schools with even worse funding.
All those extra people in much denser housing means that sewer systems designed for sparse housing get overwhelmed. This is already a problem, and getting worse.
Multi-family units pay less taxes per child occupant, but those children presumably are going to go to public schools? Many don’t speak English as their primary language. ESL teachers are mandated by law, but there is already a shortage. Many multi-family dwelling children don’t get breakfast (their parents leave for work early), and they are demanding taxpayer subsidized breakfasts and lunches.
Politicians have been given generous “campaign contributions” by the apartment REITs to approve every proposal. But the companies that might hire them have been given tax increases and lots of red tape (not necessarily caused by apartments, just happening at the same time). Low skill jobs are being automated and scaled back.
Will these new apartment dwellers find jobs that can pay enough to pay for the apartments and living expenses? Even when the Fed normalizes interest rates with inflation? Will the rents get slashed and the building maintenance too? These buildings are financed for perfection, and that is unlikely. Its far from obvious these new buildings will pay their mortgages over the medium term. They will add to the empty commercial properties, with a few years delay.
Maybe the situation is different in other places, but in the NYC suburbs these multi-family buildings are long on idealism and short on practicality
If so many multi family units are being built, we clearly need to INCREASE the rate of illegal immigration to fill those units so that we can then build more and then … And if we have a war with CCP over Taiwan, those new illegal miltary age males can be conscripted and legalized if they survive the slaughter. $5 says that a RAND plan.
Add transsexuals in there and your obsession piece is complete!
His comment was laughable 10 years ago. Much less so today.