In this month’s GVP Insights, we take a closer look at the sharp decline in multifamily housing starts — one of the most reliable indicators of future supply. With new development slowing dramatically, we explore what’s driving this trend and how it may create compelling opportunities in the years ahead.
The Data: Why This Matters Now
In 2024, multifamily builders started 254,100 fewer units than they completed. This marks the second-largest supply deficit on record, trailing only 1974. Meanwhile, total multifamily starts in 2024 fell to their lowest level since 2013 — when the country was still recovering from the Great Financial Crisis.
At the same time, completions in 2024 were the highest since 1974, meaning we’re at the peak of new supply right now. But looking ahead, the sharp decline in new starts signals that by 2026, new apartment deliveries will plunge, setting up a potential supply squeeze.
What’s Driving This Decline in New Starts?
The slowdown in new multifamily development isn’t happening in a vacuum. Several key factors have made it increasingly difficult for developers to break ground on new projects:
Higher Interest Rates – The cost of capital has surged, making it more expensive for developers to finance new construction. Many projects that would have penciled out at 4% interest rates no longer make sense at 7-8%.
Construction & Labor Costs – Inflation in materials and labor costs has squeezed developer margins, forcing many to delay or abandon planned projects.
Tighter Lending Standards – Banks and other lenders have pulled back on construction loans, requiring more equity and stricter underwriting, further limiting new supply.
Expanding Cap Rates – Rising cap rates have made it harder for development deals to pencil. The lack of rent growth has forced developers to be more conservative in their underwriting, compressing potential returns and sidelining new projects.
Why Investors Should Pay Attention
The current data highlights three key takeaways:
Supply and Demand Imbalance – With new starts at historic lows, fewer units will come online over the next 24-36 months. Meanwhile, demand drivers remain strong, including population growth, high mortgage rates keeping renters in place, and an overall housing shortage.
Rent Growth Potential – As supply diminishes and demand remains steady, rent growth could accelerate as early as this year, particularly in high-demand markets.
Strategic Acquisitions Now Pay Off Later – Today’s market volatility creates opportunities to acquire well-located properties at attractive valuations. As supply tightens, these assets could experience outsized appreciation and income growth.
Market Spotlights: Where Supply-Demand Imbalances Are Most Pronounced
While these trends apply broadly across the U.S., certain markets stand out as particularly well-positioned for future rent growth and asset appreciation:
Salt Lake City & the Silicon Slopes – A booming tech sector and rapid population growth continue to drive demand, yet new supply is slowing. In particular, Lehi has seen record lease-up activity even amid high interest rates.
Phoenix – One of the fastest-growing metros in the U.S., Phoenix still has strong in-migration, yet multifamily starts have dropped significantly, setting the stage for tighter supply.
Southern California (Orange County & San Diego) – Strict zoning laws and construction costs have already kept new supply limited. With fewer developments breaking ground, rent growth in these markets could accelerate further.
Lakewood, CO (Denver Metro) – With a voter-approved cap on new housing development, supply constraints are baked in, making well-located properties even more valuable over time.
Columbus, OH – One of the Midwest’s strongest-performing rental markets, Columbus has experienced robust job and population growth, but multifamily construction has pulled back sharply.
Looking Ahead
While no forecast is perfect, supply trends are easy to follow. With new construction starts at historic lows, far fewer apartment buildings will be completed in the next 18-24 months. As supply tightens and demand remains strong, this could drive rent growth and property values higher; creating a valuable opportunity for investors to act now and stay ahead of the next phase of the cycle.
Should you have any questions, require further insights, or wish to discuss tailored investment strategies, we’re here to help. We appreciate your continued trust and look forward to navigating these market shifts together.
