Dive Brief:

• Starts for buildings with five or more units rose 12.1% month over month in February but fell 6.6% year over year to a seasonally adjusted rate of 370,000, according to a monthly report from HUD and the U.S. Census Bureau. 
• Apartment developers pulled permits for a seasonally adjusted rate of 404,000 apartments in buildings with five units or more, a 15.7% YOY increase and a 4.3% decrease compared to January.
• Overall housing starts came in at a seasonally adjusted annual rate of 1.5 million in February — a 2.9% decrease YOY and an 11.2% increase versus January. Single-family builders hit a 12-month high by breaking ground at a rate of 1.1 million homes, which was a 2.3% YOY decrease and 11.4% month-over-month increase.

Dive Insight:

With multifamily starts continuing to show sharp YOY declines, signs point to the number of projects hitting the market and also under construction falling, as well. For each apartment starting construction, there are 1.5 apartments completing the construction process, according to the National Association of Home Builders.

At the end of February, 754,000 units were under construction, a 21.0% YOY drop and a 0.3% month-over-month decline. 

Multifamily developers finished an annualized 646,000 apartments in buildings with five or more units, a 15.8% YOY decline and a 20.7% month-over-month decrease. 

Apartment executives expect new deliveries to decline throughout the year, which could boost rent growth in the second half. For instance, Highlands Ranch, Colorado-based REIT UDR expects blended rent growth to jump from 2% to 3% by the end of the year.

UDR expects economic growth and apartment demand to remain resilient in 2025, according to CEO Tom Toomey. “This growth profile should be enhanced by supply pressures abating in the back half of the year from the historically high levels experienced in 2024,” he said on the REIT’s fourth-quarter 2024 earnings call in February.

But the real growth may not come until next year. “2025 will be a transitional year,” said Jon Siegel, co-founder and chief investment officer at Bethesda, Maryland-based apartment owner RailField Partners. “I think 2026 is probably when we’re back into the upcycle.”

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