The multifamily housing industry is navigating a period of significant change in 2024. Rising construction costs, driven by increased material prices and labor shortages, have made new developments more expensive and less profitable. Additionally, higher interest rates have led to tighter financing conditions, making it more difficult for developers to secure funding needed for new projects.

These challenges have been exacerbated by ongoing economic uncertainty. Concerns about a potential recession, coupled with volatile financial markets, have made developers more cautious about launching new multifamily projects. As a result, many are postponing or canceling developments previously in the pipeline.

According to a recent survey from the National Association of Home Builders (NAHB), multifamily builder sentiment toward production conditions dropped 12 points in July over the previous year. In the survey, builders rated current conditions on a scale from one to 100; the July assessment came in at 44.

Locally, multifamily units have consistently been down throughout much of the last year. Builders pulled permits for 150 multifamily units in July. Although this is an increase over the previous month, overall units were still down 303% from July 2023.

The slowdown in multifamily construction is having a ripple effect on the broader housing market, particularly in terms of housing supply and affordability. With fewer new units being built, the supply of rental housing is tightening, which could lead to higher rents in the coming months.

“There is no doubt that interest costs and limited financing availability are making it difficult to develop multifamily properties,” said NAHB’s chief economist, Robert Dietz. “However, financial markets may become more stable later in the year, as recent weak economic data make it more likely the Fed will cut interest rates.”