Dive Brief:

• Despite increasing demand, multifamily construction starts rose just 1% last year to 381,000 and are expected to increase 1% to 383,000 in 2020, followed by a 4% increase to 399,000 in 2021, according to the National Association of Home Builders.
• Multifamily housing starts have leveled off due to lack of skilled labor, rising material prices and expensive regulatory costs, NAHB economist Danushka Nanayakkara-Skillington said during a presentation at the International Builders’ Show in Las Vegas this week. To offset these factors, developers are building more luxury communities — which rent for more money — and fewer affordable housing options, the NAHB said in a press release.
• Although starts have levelled off, U.S. year-over-year multifamily permits increased by 11.1% in 2019. Alabama, Connecticut and Nevada saw the biggest jumps in year-over-year multifamily permits in 2019, at 88.7%, 80.8% and 65.1%, respectively. North Dakota saw the biggest drop in multifamily permits, declining by 50.5%.

Dive Insight:

To meet U.S. demand for multifamily housing, the industry needs to build about 328,000 units a year, which has only occurred twice since 1989, Sarah Yaussi, a spokesperson for the National Multifamily Housing Council (NMHC), told Construction Dive.

Housing experts say millennials are taking longer than previous generations to marry and are continuing to live with roommates in rental housing. Meanwhile, retirees downsizing from their single-family homes to more manageable spaces and Gen Z adults are just beginning to join the ranks of renters. 

Builders and developers face many challenges in meeting this high demand, which will likely continue through 2030, Yaussi said. Land development is perhaps the most costly portion of the process, the NMHC spokesperson said. In response, builders continue to offer more luxurious developments, with cafes, bars or other amenities, designed to attract high-income renters. 

At the start of the year, commercial real estate services and research company CBRE offered its predictions for 2020’s multifamily construction market. CBRE said urban multifamily markets would be outperformed by projects in the suburbs, although the NAHB reported that in recent years, urban areas have seen the most multifamily unit gains.

CBRE found that smaller markets saw the largest growth in Q3 of 2019, and expected that to continue as construction and land costs continue to rise in dense urban areas. Among the smaller cities that saw renter growth rise by as much as 4% were:

• Albuquerque, New Mexico
• Birmingham, Alabama
• Colorado Springs, Colorado
• Greensboro, North Carolina
• Memphis, Tennessee
• Dayton, Ohio
• Tucson, Arizona