Multifamily Starts Exceeded Expectations in 2023

Article originally posted on Globe St. on February 8, 2024

Despite previous forecasts, new multifamily development exceeded expectations in 2023. In part, the performance of this sector was due to a stronger-than-expected first half of 2023. In addition, data now suggests affordable and single-family housing are now significant aspects in the multifamily new-development mix, according to a recent report from Yardi Matrix.

While 2023 full year data is still incomplete, 506,742 multifamily units reportedly started construction during the year. This number would put the year in third, falling only behind 2022 and 2021 in starts for multifamily units.

The inclusion of affordable housing and single-family rentals as multifamily product types has had a consequential impact on the market. To highlight this impact, in 2013, single-family rentals constituted less than 1% of all new multifamily construction. In 2023, their share had increased to 5.8%. For full year 2022, 32,599 single-family rental units started construction, a 1,246% increase over 2013 levels. This sector of the market is on target for 2023 numbers to surpass 2022.

In a similar manner, affordable housing made up 8.4% of multifamily construction starts in 2022. In 2023, that number grew to 13.4%. Full year 2022 recorded 83,131 affordable housing unit starts, a 283% increase over the 21,722 units started in 2013.

At the same time, it comes as no surprise that markets with high levels of starts in 2022 began to experience declines in starts in 2023. These markets include Indianapolis, Salt Lake City, Austin, and Seattle, which all had declines in starts of more than 40%. In addition, markets such as suburban Atlanta, the Southwest coast of Florida, suburban Dallas, and Denver had construction starts decline by more than 25%. The Bay Area – South Bay, urban Chicago, and Las Vegas experienced declines in starts, as well.

However, 63 markets recorded an increase in starts in the first three quarters of 2023 over 2022 levels. These markets tended to be smaller and midsize markets, averaging 2,161 units.

Four of 2022’s best performers in construction starts continued to build at a faster pace in 2023. Phoenix, north Dallas, Raleigh-Durham, and Tampa-St. Petersburg-Clearwater all experienced increasing levels of new development in 2023. Overall, markets that did not participate in the post-pandemic construction surge were better able to sustain new construction in 2023.

It is expected that multifamily construction starts will continue to decline in 2024. However, even with this slowdown in new development, multifamily completions will remain robust in 2024 and early 2025.