A significant amount of multifamily supply, financed during a period of ultralow interest rates during the pandemic, is set to become available this year. However, the impact of this influx of apartment supply won’t be uniform across all markets.

Recently, researchers at John Burns Research and Consulting published a paper finding that the biggest multifamily-unit pipelines can be found in the following metros:

  1. Dallas (55,212 units)
  2. New York City (53,330 units)
  3. Phoenix (51,208 units)
  4. Austin (42,986 units)
  5. Newark (38,809 units)
  6. Atlanta (34,250 units)
  7. Charlotte (33,309 units)
  8. Houston (30,893 units)
  9. Washington, D.C. (29,359 units)
  10. Denver (29,164 units)

It should be no surprise that the Sun Belt, the epicenter of U.S. population growth, has the most apartment supply coming soon.

“The Dallas metro area leads the nation in apartment development,” wrote Steve Basham, research manager at John Burns Research and Consulting (JBREC), in the paper. “More than 20,100 units opened in 2023, and nearly 55,200 more are under construction at the start of 2024. Together, they account for a total new-apartment supply of about 75,000 units. While several thousand units are underway in downtown Dallas, most of the new construction is in northeast suburbs, including Allen, McKinney, Frisco, and Denton.”

All of that apartment supply means that multifamily rents are softening. And some markets are seeing outright declines.

“The busy development pipeline is spurring more communities to offer incentives or concessions like free rent. In July 2022, less than 5% of units for lease came with concessions; today, more than 12% do,” wrote Basham at JBREC.

According to the latest forecast from RealPage, a property management software company in the multifamily sector, 671,953 apartment units are projected to be completed in 2024. This would represent the highest level since 1974, the year of Richard Nixon’s resignation.

However, beyond 2024 and 2025, multifamily competitions will begin to decelerate.

“While 2024 and 2025 should be the busiest years on record for new apartment construction and deliveries, the pipeline will thin out after that. We expect the surge in housing apartment construction to be temporary,” wrote Basham at JBREC.

Basham added in the paper that: “Current permitting numbers [see chart above] suggest development will slow once the current wave delivers. As interest rates rose and apartment fundamentals softened, financing for new apartment developments evaporated.”

Big picture: The pandemic spurred a surge in financing for multifamily projects due to low-interest rates. This has led to a significant supply entering the market. However, with interest rates now up, fewer projects are being financed, and this is expected to temper future completions.

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