A Downturn in Construction is Enveloping the US Apartment Market

According to Realtor.com (10-2-23), the number of new apartments starting development has fallen significantly this year, a result of higher interest rates, declining rents, and what in some areas looks like overbuilding.

The US Census Bureau reported in August that apartment building starts fell to a seasonally adjusted annual rate of 334,000 units—a year-over-year decline of 41%. Real estate data firm Bright MLS reports that a decline of this size has happened only one other time since the subprime housing crisis.

Falling starts follow record apartment construction across the US. More rental buildings are expected to open this year and next than at any time since the 1980s, according to some forecasts cited by Realtor.com. That explosive increase in new rental apartment availability is driving up apartment vacancies and causing rent growth to go flat or even negative in some places.

As a result, many apartment builders are now hitting pause. They will not keep building if expected profits can’t beat safer investments or if too many other buildings are already coming on line. Many builders are saying that because of the cost and lack of construction financing they just can’t make new projects profitable, Realtor.com says. Banks, which have increased reserves to support trouble property loans they already hold, are lending far less often.

Greg Willett, first vice president at real estate advisory company Institutional Property Advisors, summed it up this way: “We expect to see about two years greatly reduced building.”