There’s good news and bad news when it comes to the multifamily development market.
Regulatory and supply-side challenges, combined with slowing rent growth and rising vacancy rates, are expected to weaken the multifamily construction market in 2021. However, the development market should stabilize by 2022, according to economists from the National Association of Home Builders, who participated in an online press conference as part of the 2021 NAHB International Builders' Show virtual experience in February.
"Though the multifamily sector is performing much better than nonresidential construction, developers are facing stiff headwinds in 2021," said Robert Dietz, NAHB chief economist. Dietz said that shortages and delays in obtaining building materials, along with rising supply prices, labor shortages and a more-challenging regulatory climate may impact affordability and delay delivery times.
Other takeaways from the press conference include:
- More construction is occurring in lower-density, lower-cost markets. More than one-third (34%) of multifamily construction occurred in these markets last year, and Dietz expects that trend to continue.
- Multifamily starts are projected to fall 11% this year compared to 2020. But production will post modest gains in 2022.
- After four years of a steady upward trajectory, rent growth flattened in 2020 due to pandemic-related issues.
- Four of the top five multifamily markets (by permits) posted yearly declines from November 2019 to November 2020. The New York-Newark-Jersey City region, the largest in the nation, registered a 14% drop in permits. Meanwhile, the Austin MSA – the second largest -- posted a robust 54% increase in permits.
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