Redfin Reports Permits to Build U.S. Apartments Have Dropped Nearly 30% Since the Pandemic

Rhea-AI Summary

The latest Redfin report reveals a significant 30% decrease in permits for building U.S. apartments since the pandemic. Builders obtained permits for 13 multifamily units per 10,000 people in 2024, down from an average of 18 in 2021-2023. This decline stems from higher interest rates and an existing surplus of multifamily units. Less than half of new apartments completed by the end of last year were rented within three months.

Despite the overall slowdown, Cape Coral, FL, and Austin, TX, top the list for new permits. Several metros, especially in the Sun Belt, continue to see notable permitting activity due to ongoing demand. In contrast, places like Stockton and Bakersfield, CA, saw minimal to no new permits.

While multifamily construction has slowed nationally, 25 U.S. metros have experienced a rise in permits. The report highlights that rent prices have stabilized, with a slight increase of less than 1% year-over-year. Cities with high pandemic-era construction like Austin and Jacksonville are seeing rent declines due to increased competition among property owners.

Positive

• Cape Coral, FL leads in multifamily housing permits with 27 units per 10,000 people.
• Austin, TX, permits 21 multifamily units per 10,000 people, marking it as the second highest.
• 25 U.S. metros, including Greensboro and Omaha, saw an increase in multifamily permits since the pandemic.

Negative

• Overall, U.S. multifamily permits have dropped nearly 30% since the pandemic.
• Less than half of new apartments were rented within three months of completion.
• Austin saw a significant decline in permits, from 40 per 10,000 people in 2021-2023 to 21 in 2024.
• Median asking rents have fallen in 16 of 33 metros where Redfin has data, including a 10% drop in Jacksonville and a 7% decline in Austin.

Insights

Market Research Analyst

The report from Redfin highlights a significant decrease in permits to build multifamily housing units across the U.S., with a nearly 30% drop since the pandemic. This signals a shift in the housing market dynamics, largely driven by elevated interest rates and a surplus of new housing units that have entered the market in recent years. The high number of new units completed but not yet occupied reflects a temporary imbalance between supply and demand.

This has direct implications on rental prices. With a large number of newly completed units, property owners are competing for tenants, resulting in a minimal 1% increase in asking rents compared to the previous year. This is a stark contrast to the 18% growth during the pandemic, suggesting a cooling of the rental market. However, the report indicates potential future upticks in rent prices once the excess supply is absorbed.

This scenario is worth monitoring for investors in the real estate sector. While the current reduced demand for permits might seem negative, it could stabilize the market in the long term by preventing oversupply. Investors should consider the impact of prolonged high-interest rates and the regional variations in permitting activities, with places like Cape Coral and Austin still leading in new permits despite broader declines.

Financial Analyst

From a financial perspective, the reduction in multifamily housing permits is a clear indicator of the market's response to current economic conditions, particularly high interest rates. Elevated borrowing costs make financing new construction projects more expensive, leading builders to become more cautious. This cutback in new permits can be seen as a risk-mitigating strategy, potentially averting the financial strain of over-leverage in a volatile market.

For stakeholders of companies like Redfin and other real estate brokerage firms, it's important to understand how this decrease in new permits and the concurrent high completion rates of existing projects will affect revenues and profit margins. The competitive rental market driven by a surplus of new units could limit rent price growth, thereby affecting revenue streams from rental properties. Developers and property owners need to navigate this landscape carefully, balancing the need for competitive pricing with the necessity of maintaining profitable operations.

Moreover, investors should be particularly attentive to the regional disparities in permit activities. While some regions like Cape Coral and Austin show resilience, others are seeing significant drop-offs. This uneven landscape demands a nuanced investment approach, focusing on regions with continued demand despite broader market challenges.

Cape Coral, FL—at risk from natural disasters—is permitting more multifamily housing than anywhere else in the U.S. Austin ranks second, but has seen a significant slowdown in permits

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) —Builders obtained permits to construct 13 multifamily housing units for every 10,000 people in the U.S. so far this year, down nearly 30% from an average of 18 during the same periods in 2021-2023. That’s according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

The report is based on a Redfin analysis of U.S. Census Bureau data covering building permits for multifamily units in buildings with five or more units during the first five months of 2024, and the same periods in 2021-2023. National figures cover the entire U.S., while the metro sections below cover the 79 U.S. metros with populations of at least 750,000.

Multifamily building permits have dwindled not because they’re harder to get, but because builders are seeking fewer of them. Here are two reasons builders are seeking fewer permits:

1. Elevated interest rates have made it more expensive to borrow money for construction projects.
2. There’s already a near-record number of new multifamily units hitting the market due to a building boom in recent years, making it difficult for some property owners to find tenants. Less than half (47%) of new apartments that were completed at the end of last year were rented within three months—the lowest share since 2020.

While multifamily building permits and starts have slowed significantly—both have fallen below their 10-year historical average—the number of units being completed is still at historic highs. That’s because a lot of projects that started during the pandemic are just now being finished. This backlog of new units means property owners in many areas are competing with one another for tenants, which is putting a cap on how much U.S. rent prices can grow. Asking rents are up less than 1% from a year ago—a far cry from the 18% growth seen during the pandemic—though they are still at the highest level since 2022.

"Prospective renters should be aware that now may be a better time to sign a lease than later,” said Redfin Senior Economist Sheharyar Bokhari. “Property owners might start jacking up rents again once all of the new apartments hitting the market fill up with tenants and there’s no longer so much supply, which could be the case in a year or two.”

Cape Coral and Austin Are Permitting More Multifamily Housing Than Anywhere Else in the U.S.

In Cape Coral, FL builders got permits to construct 27 multifamily units per 10,000 people this year—the highest level among the 79 metros Redfin analyzed. Next came Austin, TX (21), Greensboro, NC (20), North Port, FL (18), Omaha, NE (17), Nashville, TN (15), Tampa, FL (14), Orlando, FL (13), Dallas (13) and Columbus, OH (12).

Many of these metros are in the Sun Belt, which surged in popularity during the pandemic, fueling a building boom in the region. Florida is home to four of the 10 aforementioned metros.

Florida faces high risk from storms, flooding and sea level rise, and is the epicenter of the housing insurance crisis. But builders keep building because there’s still demand—partly due to the influx of out-of-towners who moved in during the pandemic. Permits may also be rising in Florida as homeowners continue to rebuild after Hurricane Ian in late 2022.

The two metros with the fewest multifamily permits per 10,000 people are in California. In Stockton, CA, no permits were issued in the first five months of the year. It’s followed by Bakersfield, CA (0), Providence, RI (0), El Paso, TX (1), Baton Rouge, LA (1), Cleveland (1), Fresno, CA (1), Detroit (1), Dayton, OH (1) and New Orleans (1).

Multifamily Construction Has Slowed in Most Areas Since the Pandemic, But There Are 25 Metros Where Permitting Has Increased

Most metro areas have seen a dropoff in multifamily building permits since the pandemic, with Austin posting the biggest decline, despite still being the second largest permitter in the nation. As mentioned above, builders in the Texas capital obtained 21 permits per 10,000 people this year—but that’s down from an average of 40 in 2021-2023. Jacksonville saw the second biggest drop (5 permits per 10k people in 2024 vs 23 permits per 10k people in 2021-2023). Next came Colorado Springs, CO (7 vs 24), Boise, ID (4 vs 17) and Raleigh, NC (9 vs 21).

Many of the aforementioned housing markets rose in popularity during the pandemic and have since slowed, in part because many people have been priced out.

On the other end of the spectrum, 25 metros are permitting more than they were during the pandemic. Builders in Greensboro obtained 20 multifamily permits for every 10,000 people this year, up from an average of just four in 2021-2023—the biggest increase among the metros Redfin analyzed. Rounding out the top five are Cape Coral (27 vs 16), Omaha (17 vs 10), Columbus (12 vs 7) and Tampa (14 vs 9). Refer to the report linked at the bottom of this press release for full metro-level data.

Rents Are Falling in Many of the Metros Where Building Boomed During the Pandemic

Median asking rents are down from a year ago in 16 of the 33 metros for which Redfin has rent-price data. In many of those metros, rents are falling because multifamily construction has ballooned, meaning building owners are competing for tenants. The 16 metros where rents are falling permitted an average of 14 multifamily units per 10,000 people in 2021-2023. By comparison, the metros where rents are rising permitted an average of just seven units per 10,000 people.

It makes sense to analyze permits in 2021-2023 (rather than 2024) when looking at current rent-price trends because those are the units that have already hit the market, meaning they have had time to impact rents.

In Jacksonville, the median asking rent fell 10% year over year in May—the biggest drop among the metros for which Redfin has rent data. Jacksonville was one of the country’s top permitters in 2021-2023, with an average of 23 multifamily units per 10,000 people. The story is similar in Austin, which was the nation’s top permitter during the pandemic and saw asking rents drop 7% in May—the third steepest decline among the metros for which Redfin has rent-price data.

To view the full report, including charts and metro-level data, please visit: https://www.redfin.com/news/america-building-fewer-apartments-2024

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240709995508/en/

Redfin

Redfin Journalist Services:

Kenneth Applewhaite

press@redfin.com

Source: Redfin

FAQ

Why have permits for building U.S. apartments dropped nearly 30%?

The decline is due to elevated interest rates and an existing surplus of multifamily units making it harder for property owners to find tenants.

Which U.S. city is issuing the most multifamily housing permits in 2024?

Cape Coral, FL is issuing the most permits, with 27 multifamily units per 10,000 people.

How has Austin, TX been affected in terms of multifamily housing permits?

Austin has seen a significant slowdown, with permits dropping from an average of 40 per 10,000 people in 2021-2023 to 21 in 2024.

How are asking rents affected by the current multifamily housing market?

Asking rents are up less than 1% year-over-year, with some metros like Jacksonville and Austin seeing declines due to increased competition among property owners.

Which U.S. metros saw the biggest increase in multifamily permits since the pandemic?

The biggest increases were seen in Greensboro, Cape Coral, Omaha, Columbus, and Tampa.