Rising interest rates and market saturation have caused multifamily builders to slow the rate of new projects, according to a Redfin report published on Tuesday. Between 2021 and 2023, builders filed an average of 18 permits to build multifamily housing units for every 10,000 people in the U.S. However, that number has dropped to an average of 13 permits as of May 2024.
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A rise in interest rates and an already saturated rental market has pushed multifamily building permits down 30 percent compared to the past three years, according to a Redfin report published on Tuesday.
Between 2021 and 2023, builders filed an average of 18 permits to build multifamily housing units for every 10,000 people in the U.S. However, that number has dropped to an average of 13 permits as of May 2024. Some jurisdictions don’t require permits and aren’t included in the U.S. Census Bureau’s multifamily housing data.
“Elevated interest rates have made it more expensive to borrow money for construction projects,” the report read. “There’s already a near-record number of new multifamily units hitting the market due to a building boom in recent years, making it difficult for some property owners to find tenants.”
Although permits have fallen below the 10-year average, the report said the number of completed projects is still at all-time highs, as projects that received permits between 2021 and 2023 are just being completed. The rise in multifamily inventory has created intense competition for tenants, with less than half (47 percent) of new apartments that opened at the end of 2023 finding tenants within three months.
Sheharyar Bokhari | Credit: Redfin
Redfin Senior Economist Sheharyar Bokhari said the abundance of options has given way to softening rent growth. Asking rents only climbed 0.8 percent year over year in May — a rate far below the 18 percent annual growth seen just a few years ago. Even with slowing growth, the median asking rent is still at the highest level ($1,653) since 2022.
“Prospective renters should be aware that now may be a better time to sign a lease than later,” he said in the report. “Property owners might start jacking up rents again once all of the new apartments hitting the market fill up with tenants and there’s no longer so much supply, which could be the case in a year or two.”
Despite the permitting slowdown on a national level, Texas and Florida builders are bucking the trends.
Cape Coral, Florida, builders got permits to construct 27 multifamily units per 10,000 people this year—the highest level among the 79 markets Redfin studied. 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); rounded out the top 10.
Meanwhile, Stockton, California, had zero permits issued in the first five months of 2024. Builders in Bakersfield, California, and Providence, Rhode Island, found themselves in the same boat as builders in Stockton with zero permits. Builders in El Paso, Texas; Baton Rouge, Louisiana; Cleveland, Fresno, California; Detroit, Dayton, Ohio; and New Orleans did marginally better with one multifamily building permit issued during the first five months of 2024.
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