Here's yet another sign that apartment supply will plunge in the second half of 2025 and into 2026: Multifamily permits continue to drop off, and in January 2024 hit the lowest levels since the COVID lockdown era. And there's little reason to expect that storyline to change any time soon.
Permits had been somewhat stickily elevated through 2023, even if well below 2021-22 peaks. We heard many developers pushed forward on pulling permits for various reasons, primarily on projects that had been rapidly advancing to that stage prior to hitting the wall of rising rates, falling lease-up rents and diminishing capital interest in ground-up development. Some developers were pushing to be "shovel ready" once capital returned.
But that permitting pipeline is drying up. Total multifamily permits nationally fell below 34,000 units in January for the first time since April 2020 -- which, of course, was during the height of COVID lockdowns, partially closed municipal offices and heightened uncertainty.
Starts also dropped off 40% in 2023 (compared to 2022), and developer surveys and declining permit volumes suggest even fewer starts in 2024. Some starts will continue (the pipeline isn't totally dry), with many of those having some type of affordable housing or attainable housing component -- where financing can still be available (though, of course, often quite complicated).
When will permits and starts take off again? Probably no time soon.
Think about what it would take. A material rise in permits and starts would first require rebounding apartment fundamentals -- especially for lease-ups to stabilize and rents to start climbing again. Given peak supply hitting this year and early 2025, that probably won't happen until mid-2025 at the very earliest... likely later. Additionally, construction lenders will need to see some eased regulatory pressure, and equity investors will want to see some decline in rates plus see market dynamics shift back where there's better yield on ground-up development than on chasing recent lease-ups.
All that will take quite some time.
Bottom line: This is all more evidence apartment supply will drop substantially in the second half of 2025, into 2026 and likely into 2027. And that should give confidence to operators and lenders banking on a market rebound over that time period.