Dive Brief

• Starts for buildings with five or more units declined 37.9% year over year to a seasonally adjusted rate of 314,000 in January, according to a report from the HUD and the U.S. Census Bureau. 
• Developers pulled permits for 405,000 apartments in buildings with five units or more in January, a 26.6% YOY drop. At the end of January, 979,000 units were under construction, a 5% YOY increase.    
• Overall, housing starts hit almost 1.3 million in January, a 0.7% YOY increase. Single-family builders were authorized for 1 million units, a 22.0% jump. Housing permits reached nearly 1.5 million, an 8.6% YOY increase.  

Dive Insight:

Housing completions continue to rise, hitting almost 1.4 million in January, a 2.8% YOY increase. Apartment developers completed 538,000 units during the month, a 53.7% YOY jump.      

Those new units are putting pressure on multifamily owners nationwide, but specifically in the Sun Belt markets. In Highlands Ranch, Colorado-based UDR’s portfolio, Austin, Texas; Nashville, Tennessee; Orlando, Florida; and Denver will see some of the highest levels of new supply.

“The Sun Belt is forecast to face significantly higher absolute deliveries than the coastal markets, although all regions will face higher relative supply in 2024 as compared to their long-term averages,” said UDR Senior Vice President of Operations Mike Lacy on the REIT’s fourth quarter 2023 earnings call.

However, those deliveries will eventually slow. “I think as you turn the corner and you get into ‘25, you're going to start to see that supply number slow down,” said Michael Manelis, chief operating officer at Chicago-based Equity Residential, on the REIT’s Q4 earnings call. “But you are still going to have a little bit of the overhang of the pressure from the units that were delivered to the market in 2024.”

Still, new supply isn’t totally bad news for multifamily owners. These apartment completions could also provide buying opportunities for REITs like EQR and Arlington, Virginia-based AvalonBay Communities, who want to expand in the Sun Belt.

“As we head into 2023, the transaction markets remain unsettled, but we see higher-than-usual supply in the Sun Belt and Denver markets in which we wish to expand as hopefully creating buying opportunities for us later in the year,” EQR CEO Mark Parrell said on the earnings call.

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