Dive Brief

• Starts for buildings with five or more units declined 9.5% year over year to a seasonally adjusted rate of 417,000 in December, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. However, starts rose 7.5% from November.
• Developers pulled permits for 449,000 apartments in buildings with five units or more in December, a 26.6% YOY drop. They completed 509,000 units during the month, a 33.6% YOY jump, as they continued to finish projects started when financing was more plentiful.
• Overall housing starts hit almost 1.5 million in December, a 7.6% YOY increase. Housing permits also came in at nearly 1.5 million, a 6.1% YOY increase. Completions rose to almost 1.6 million to 13.2%.

Dive Insight:

As multifamily developers struggle to get capital lined up for deals, single-family builders continue to drive housing starts. They were authorized for 994,000 units, a 32.9% jump.

Though starts for new homes were 8.6% below November’s strong numbers, they came in at just above 1 million, a 15.8% YOY increase. It was the second straight month they passed the 1 million pace. 

For multifamily, half of that output — 500,000 starts — is an exceptionally strong year. After hitting that number in 2022, developers wound down to 420,000 units in 2023 and are projected to start 280,000 apartments in 2024, according to Witten Advisors, a Dallas-based firm that provides apartment companies with advisory services.

Ryan Davis, CEO of Witten Advisors, doesn’t see the multifamily industry approaching 500,000 anytime soon. “We’ll probably get to pre-COVID levels in 2028,” he said. “But it's going to be tough to get back to that half-a-million figure that we had in 2022 anytime soon.”

For developers, finding debt is the main problem. Financing rates start at 8% or 9%, and lenders want more equity contributions from developers, according to Yardi.

Banks are also dealing with the fallout from the Silicon Valley Bank and Signature Bank failures in 2023 and problems in the office sector.

“The capital markets are pretty constrained,” said Jay Hiemenz, president and chief operating officer of Scottsdale, Arizona-based developer Alliance Residential. “I guess the question will be when they open back up, particularly on the lending side. Maybe it's in the fourth quarter of 2024, but probably, more realistically, it’s into 2025.”

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