U.S. Multifamily Starts Hit 2-Year High, But The Future Pipeline Is Shrinking

U.S. homebuilding is beating expectations, but the housing market’s overall message is far from clear. 

New construction is surging across the board. Housing starts jumped 5.2% in July, blowing past forecasts, according to government data released Tuesday. The gains were driven by a 10% spike in multifamily projects, the sector’s fastest pace in two years. Single-family starts, which dominate residential construction, ticked up 2.8% in July.

But while a wave of new apartments is set to hit the market, the pipeline further out looks far thinner.

Multifamily permits dropped 2.8% in July, though starts are still up 1.4% year-to-date. Single-family authorizations edged up 0.5%, Census Bureau data shows.

The Midwest showed the most momentum, with single-family permits up 2.2% in July and multifamily authorizations 9% higher year-to-date.

Overall, the Midwest is emerging as multifamily’s new hot spot, edging out the Sun Belt as the sector’s favored region. Sales more than doubled year-over-year in the first quarter, fueled in part by investors launching funds dedicated to the market. Construction climbed 33% in July, and Chicago posted the nation’s third-strongest rent growth in May, up 4.2% year-over-year.

July’s construction data points to a possible recovery, but the pullback in permits suggests builders remain cautious amid macroeconomic headwinds. Permitting has slowed to below prepandemic levels, down 23% from the peak years of 2020 to 2023.

After a three-year building spree, a glut of apartments has landlords slashing rents and piling on concessions to keep units occupied. 

But the tide is shifting.

With mortgage rates doubling over the past two years, many would-be homeowners are priced out, pushing more people into the rental market. That demand has driven asking rents higher and pushed the multifamily vacancy rate down 70 basis points in Q2.