Builders are seeking fewer construction permits for multifamily properties due to elevated interest rates and an increasingly saturated market.
According to Redfin, permits to build apartments in the United States have dropped nearly 30% since the pandemic. Builders have obtained permits to construct 13 multifamily housing units for every 10,000 people in the country so far this year, according to its new report based on data from the U.S. Census Bureau.
In addition to the challenging interest rate environment, builders may be waiting out a building boom in recent years that has made it difficult for property owners to find tenants. Only 47% of newly completed apartments were rented within three months at the end of last year, the lowest share since 2020, said Redfin.
Although permits have slowed significantly to below their 10-year historical average, the number of units being completed remains at historic highs as projects started during the pandemic are now being completed. This has created a backlog of new units property owners are competing with each other to rent out, which is putting downward pressure on rents. Asking rates, which were growing by 18% during the pandemic, rose only 1% in the past year, said Redfin, though it noted asking rents are still at their highest level since 2022.
“Prospective renters should be aware that now may be a better time to sign a lease than later,” said Redfin senior economist Sheharyar Bokhari. “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.”
Some Sun belt markets bucked the permitting decline and are permitting more multifamily housing than anywhere else in the country. Permits to construct 27 multifamily units per 10,000 people were issued in Cape Coral, Florida, followed by 21 in Austin, Texas; 20 in Greensboro, North Carolina; and 18 in North Port, Florida.
“Florida faces high risk from storms, flooding and sea level rise, and is the epicenter of the housing insurance crisis,” the report noted. “But builders keep building because there’s still demand — partly due to the influx of out-of-towners who moved in during the pandemic. Permits may also be rising in Florida as homeowners continue to rebuild after Hurricane Ian in late 2022.”
The two metros with the fewest multifamily permits per 10,000 people are in California, with both Stockton and Bakersfield issuing no permits in the first five months of 2024. Providence, Rhode Island, also has had no new multifamily building permits issued this year, while El Paso, Texas; Baton Rouge, Louisiana; Cleveland; Fresno, California; Detroit; Dayton, Ohio; and New Orleans each have only had one new multifamily building permit issued so far this year.
